Autodesk, Inc. - Quarter Report: 2021 July (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2021
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-14338
AUTODESK, INC.
(Exact name of registrant as specified in its charter)
Delaware | 94-2819853 | ||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer Identification No.) | ||||||||||
111 McInnis Parkway, | |||||||||||
San Rafael, | California | 94903 | |||||||||
(Address of principal executive offices) | (Zip Code) |
(415) 507-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Common Stock, par value $0.01 per share | ADSK | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ‘emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 27, 2021, registrant had outstanding 219,850,441 shares of common stock.
AUTODESK, INC. FORM 10-Q
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Net revenue: | |||||||||||||||||||||||
Subscription | $ | 1,016.7 | $ | 841.2 | $ | 1,964.2 | $ | 1,644.2 | |||||||||||||||
Maintenance | 16.9 | 51.2 | 36.0 | 113.3 | |||||||||||||||||||
Total subscription and maintenance revenue | 1,033.6 | 892.4 | 2,000.2 | 1,757.5 | |||||||||||||||||||
Other | 26.1 | 20.7 | 48.8 | 41.3 | |||||||||||||||||||
Total net revenue | 1,059.7 | 913.1 | 2,049.0 | 1,798.8 | |||||||||||||||||||
Cost of revenue: | |||||||||||||||||||||||
Cost of subscription and maintenance revenue | 76.0 | 58.5 | 144.5 | 115.9 | |||||||||||||||||||
Cost of other revenue | 15.8 | 15.0 | 29.9 | 32.1 | |||||||||||||||||||
Amortization of developed technologies | 13.6 | 7.4 | 23.8 | 14.8 | |||||||||||||||||||
Total cost of revenue | 105.4 | 80.9 | 198.2 | 162.8 | |||||||||||||||||||
Gross profit | 954.3 | 832.2 | 1,850.8 | 1,636.0 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Marketing and sales | 398.8 | 350.9 | 775.9 | 692.2 | |||||||||||||||||||
Research and development | 276.9 | 232.5 | 542.4 | 449.9 | |||||||||||||||||||
General and administrative | 119.4 | 93.2 | 231.3 | 198.0 | |||||||||||||||||||
Amortization of purchased intangibles | 11.1 | 9.5 | 19.3 | 19.2 | |||||||||||||||||||
Total operating expenses | 806.2 | 686.1 | 1,568.9 | 1,359.3 | |||||||||||||||||||
Income from operations | 148.1 | 146.1 | 281.9 | 276.7 | |||||||||||||||||||
Interest and other expense, net | (9.3) | (17.1) | (11.7) | (57.2) | |||||||||||||||||||
Income before income taxes | 138.8 | 129.0 | 270.2 | 219.5 | |||||||||||||||||||
(Provision) benefit for income taxes | (23.2) | (30.8) | 1.0 | (54.8) | |||||||||||||||||||
Net income | $ | 115.6 | $ | 98.2 | $ | 271.2 | $ | 164.7 | |||||||||||||||
Basic net income per share | $ | 0.53 | $ | 0.45 | $ | 1.23 | $ | 0.75 | |||||||||||||||
Diluted net income per share | $ | 0.52 | $ | 0.44 | $ | 1.22 | $ | 0.74 | |||||||||||||||
Weighted average shares used in computing basic net income per share | 219.8 | 219.2 | 219.7 | 219.2 | |||||||||||||||||||
Weighted average shares used in computing diluted net income per share | 222.5 | 222.2 | 222.2 | 222.0 |
See accompanying Notes to Condensed Consolidated Financial Statements.
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AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Net income | $ | 115.6 | $ | 98.2 | $ | 271.2 | $ | 164.7 | |||||||||||||||
Other comprehensive (loss) income, net of reclassifications: | |||||||||||||||||||||||
Net gain (loss) on derivative instruments (net of tax effect of $(1.7), $2.3, $(3.4) and $1.9, respectively) | 9.5 | (19.5) | 19.5 | (15.5) | |||||||||||||||||||
Change in net unrealized gain on available-for-sale debt securities (net of tax effect of zero, zero, zero and $0.1, respectively) | 3.8 | 0.9 | 7.8 | 1.3 | |||||||||||||||||||
Change in defined benefit pension items (net of tax effect of zero for all periods presented) | 0.1 | — | 0.2 | (0.3) | |||||||||||||||||||
Net change in cumulative foreign currency translation (loss) gain (net of tax effect of $1.2, $(0.4), $(0.6) and $(0.4), respectively) | (25.1) | 43.2 | (15.0) | 20.3 | |||||||||||||||||||
Total other comprehensive (loss) income | (11.7) | 24.6 | 12.5 | 5.8 | |||||||||||||||||||
Total comprehensive income | $ | 103.9 | $ | 122.8 | $ | 283.7 | $ | 170.5 |
See accompanying Notes to Condensed Consolidated Financial Statements.
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AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
July 31, 2021 | January 31, 2021 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 923.5 | $ | 1,772.2 | |||||||
Marketable securities | 1.4 | 4.0 | |||||||||
Accounts receivable, net | 357.8 | 643.1 | |||||||||
Prepaid expenses and other current assets | 263.3 | 206.2 | |||||||||
Total current assets | 1,546.0 | 2,625.5 | |||||||||
Computer equipment, software, furniture and leasehold improvements, net | 198.3 | 192.8 | |||||||||
Operating lease right-of-use assets | 384.3 | 416.7 | |||||||||
Intangible assets, net | 511.3 | 199.3 | |||||||||
Goodwill | 3,562.2 | 2,706.5 | |||||||||
Deferred income taxes, net | 739.6 | 763.1 | |||||||||
Long-term other assets | 478.9 | 375.9 | |||||||||
Total assets | $ | 7,420.6 | $ | 7,279.8 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 108.4 | $ | 122.5 | |||||||
Accrued compensation | 216.5 | 322.6 | |||||||||
Accrued income taxes | 21.9 | 42.6 | |||||||||
Deferred revenue | 2,521.0 | 2,500.9 | |||||||||
Operating lease liabilities | 87.7 | 71.4 | |||||||||
Other accrued liabilities | 131.9 | 194.7 | |||||||||
Total current liabilities | 3,087.4 | 3,254.7 | |||||||||
Long-term deferred revenue | 779.4 | 859.3 | |||||||||
Long-term operating lease liabilities | 358.9 | 396.0 | |||||||||
Long-term income taxes payable | 21.1 | 15.9 | |||||||||
Long-term deferred income taxes | 60.4 | 11.4 | |||||||||
Long-term notes payable, net | 1,638.4 | 1,637.2 | |||||||||
Long-term other liabilities | 147.2 | 139.8 | |||||||||
Stockholders’ equity: | |||||||||||
Common stock and additional paid-in capital | 2,780.7 | 2,578.9 | |||||||||
Accumulated other comprehensive loss | (113.4) | (125.9) | |||||||||
Accumulated deficit | (1,339.5) | (1,487.5) | |||||||||
Total stockholders’ equity | 1,327.8 | 965.5 | |||||||||
Total liabilities and stockholders' equity | $ | 7,420.6 | $ | 7,279.8 |
See accompanying Notes to Condensed Consolidated Financial Statements.
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AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended July 31, | |||||||||||
2021 | 2020 | ||||||||||
Operating activities: | |||||||||||
Net income | $ | 271.2 | $ | 164.7 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation, amortization and accretion | 72.4 | 60.0 | |||||||||
Stock-based compensation expense | 266.0 | 194.1 | |||||||||
Deferred income taxes | 25.7 | 14.5 | |||||||||
Other | 7.9 | 36.0 | |||||||||
Changes in operating assets and liabilities, net of business combinations: | |||||||||||
Accounts receivable | 292.6 | 162.7 | |||||||||
Prepaid expenses and other assets | (157.5) | (52.0) | |||||||||
Accounts payable and other liabilities | (150.8) | (42.8) | |||||||||
Deferred revenue | (70.6) | (130.0) | |||||||||
Accrued income taxes | (18.8) | 11.3 | |||||||||
Net cash provided by operating activities | 538.1 | 418.5 | |||||||||
Investing activities: | |||||||||||
Purchases of marketable securities | — | (17.0) | |||||||||
Sales and maturities of marketable securities | 4.0 | 11.0 | |||||||||
Capital expenditures | (36.1) | (46.7) | |||||||||
Purchases of developed technologies | (7.7) | (4.8) | |||||||||
Business combinations, net of cash acquired | (1,154.6) | — | |||||||||
Other investing activities | 8.0 | (54.3) | |||||||||
Net cash used in investing activities | (1,186.4) | (111.8) | |||||||||
Financing activities: | |||||||||||
Proceeds from issuance of common stock, net of issuance costs | 64.7 | 58.5 | |||||||||
Taxes paid related to net share settlement of equity awards | (61.9) | (39.6) | |||||||||
Repurchases of common stock | (198.7) | (209.0) | |||||||||
Repayment of debt | — | (450.0) | |||||||||
Other financing activities | — | (2.5) | |||||||||
Net cash used in financing activities | (195.9) | (642.6) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (4.5) | 1.0 | |||||||||
Net decrease in cash and cash equivalents | (848.7) | (334.9) | |||||||||
Cash and cash equivalents at beginning of period | 1,772.2 | 1,774.7 | |||||||||
Cash and cash equivalents at end of period | $ | 923.5 | $ | 1,439.8 | |||||||
Supplemental cash flow disclosure: | |||||||||||
Non-cash financing activities: | |||||||||||
Fair value of common stock issued to settle liability-classified restricted stock units | $ | — | $ | 28.7 | |||||||
Fair value of common stock issued related to business combination (See Note 8) | $ | 2.6 | $ | — |
See accompanying Notes to Condensed Consolidated Financial Statements.
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AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Tables in millions, except share and per share data, or as otherwise noted)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Autodesk, Inc. (“Autodesk,” “we,” “us,” “our,” or the “Company”) as of July 31, 2021, and for the three and six months ended July 31, 2021 and 2020, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information along with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In management’s opinion, Autodesk made all adjustments (consisting of normal, recurring and non-recurring adjustments) during the quarter that were considered necessary for the fair statement of the financial position and operating results of the Company. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. In March 2020, the World Health Organization declared the outbreak of a disease caused by a novel strain of the coronavirus (COVID-19) to be a pandemic. This pandemic has created and may continue to create significant uncertainty in the macroeconomic environment which, in addition to other unforeseen effects of this pandemic, may adversely impact our results of operations. As the COVID-19 pandemic continues to develop, many of our estimates could require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve our estimates may change materially in future periods. In addition, the results of operations for the three and six months ended July 31, 2021, are not necessarily indicative of the results for the entire fiscal year ending January 31, 2022, or for any other period. Further, the balance sheet as of January 31, 2021, has been derived from the audited Consolidated Balance Sheet as of this date. There have been no material changes, other than what is discussed herein, to Autodesk's significant accounting policies as compared to the significant accounting policies disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2021. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes, together with management’s discussion and analysis of financial position and results of operations, contained in Autodesk’s Annual Report on Form 10-K for the fiscal year ended January 31, 2021, filed on March 19, 2021.
Change in presentation and immaterial correction of an error
During the quarter ended July 31, 2021, the Company changed its presentation on the Condensed Consolidated Balance Sheet for intangible assets. These amounts were previously presented in “Developed technologies, net” and “Long-term other assets” and are now presented as “Intangible assets, net.” Accordingly, prior period amounts have been reclassified to conform to the current period presentation. This presentation change did not impact “Total assets” on the Condensed Consolidated Balance Sheets and had no impact on the Company's Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income, and Condensed Consolidated Statements of Cash Flows.
The effects of the change on the Consolidated Balance Sheet as of January 31, 2021, was as follows:
As Reported January 31, 2021 | Effect of Change in Presentation | As Adjusted January 31, 2021 | |||||||||||||||
Intangible assets, net | $ | 88.6 | $ | 110.7 | $ | 199.3 | |||||||||||
Long-term other assets | 486.6 | (110.7) | 375.9 | ||||||||||||||
Total assets | 7,279.8 | — | 7,279.8 |
During the quarter ended April 30, 2021, the Company changed its presentation on the Condensed Consolidated Balance Sheets for investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans, including correcting the classification as current and non-current assets. These amounts were previously presented as current “Marketable securities” and are now presented as “Prepaid expenses and other current assets” and “Long-term other assets” on the Condensed Consolidated Balance Sheets. Accordingly, prior period amounts have been reclassified to conform to the current period presentation. These presentation and classification changes did not impact “Total assets” on the Condensed Consolidated Balance Sheets and had no impact on the Company's Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statement of Cash Flows.
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The effects of the changes on the Consolidated Balance Sheets as of January 31, 2021, were as follows:
As Reported January 31, 2021 | Effect of Changes in Presentation | As Adjusted January 31, 2021 | |||||||||||||||
Marketable securities | $ | 85.0 | $ | (81.0) | $ | 4.0 | |||||||||||
Prepaid and other current assets | 198.9 | 7.3 | 206.2 | ||||||||||||||
Long-term other assets | 412.9 | 73.7 | 486.6 | ||||||||||||||
Total current assets | 2,699.2 | (73.7) | 2,625.5 | ||||||||||||||
Total assets | 7,279.8 | $ | — | 7,279.8 |
2. Recently Issued Accounting Standards
With the exception of those discussed below, there have been no recent changes in accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or adopted by the Company during the six months ended July 31, 2021, that are applicable to the Company.
Recently issued accounting standards not yet adopted
In March 2020, FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU No. 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020, through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. Autodesk will apply the expedients in ASU No. 2020-04 through December 31, 2022. Autodesk does not believe ASU No. 2020-04 will have a material impact on its consolidated financial statements.
3. Revenue Recognition
Revenue Disaggregation
Autodesk recognizes revenue from the sale of (1) product subscriptions, cloud service offerings, and enterprise business agreements (“EBAs”), (2) renewal fees for existing maintenance plan agreements that were initially purchased with a perpetual software license, and (3) consulting, training, and other goods and services. The three categories are presented as line items on Autodesk's Condensed Consolidated Statements of Operations.
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Information regarding the components of Autodesk's net revenue from contracts with customers by product family, geographic location, sales channel, and product type is as follows:
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Net revenue by product family: | |||||||||||||||||||||||
Architecture, Engineering and Construction | $ | 478.7 | $ | 397.0 | $ | 921.3 | $ | 779.7 | |||||||||||||||
AutoCAD and AutoCAD LT | 304.4 | 271.9 | 589.5 | 534.1 | |||||||||||||||||||
Manufacturing | 207.7 | 185.5 | 405.0 | 368.4 | |||||||||||||||||||
Media and Entertainment | 58.5 | 53.3 | 113.5 | 105.9 | |||||||||||||||||||
Other | 10.4 | 5.4 | 19.7 | 10.7 | |||||||||||||||||||
Total net revenue | $ | 1,059.7 | $ | 913.1 | $ | 2,049.0 | $ | 1,798.8 | |||||||||||||||
Net revenue by geographic area: | |||||||||||||||||||||||
Americas | |||||||||||||||||||||||
U.S. | $ | 347.3 | $ | 309.5 | $ | 671.3 | $ | 610.1 | |||||||||||||||
Other Americas | 75.5 | 62.0 | 143.2 | 123.6 | |||||||||||||||||||
Total Americas | 422.8 | 371.5 | 814.5 | 733.7 | |||||||||||||||||||
Europe, Middle East and Africa | 410.2 | 354.7 | 792.7 | 699.5 | |||||||||||||||||||
Asia Pacific | 226.7 | 186.9 | 441.8 | 365.6 | |||||||||||||||||||
Total net revenue | $ | 1,059.7 | $ | 913.1 | $ | 2,049.0 | $ | 1,798.8 | |||||||||||||||
Net revenue by sales channel: | |||||||||||||||||||||||
Indirect | $ | 702.2 | $ | 639.3 | $ | 1,363.5 | $ | 1,262.7 | |||||||||||||||
Direct | 357.5 | 273.8 | 685.5 | 536.1 | |||||||||||||||||||
Total net revenue | $ | 1,059.7 | $ | 913.1 | $ | 2,049.0 | $ | 1,798.8 | |||||||||||||||
Net revenue by product type: | |||||||||||||||||||||||
Design | $ | 944.0 | $ | 821.4 | $ | 1,829.1 | $ | 1,619.1 | |||||||||||||||
Make | 89.6 | 71.0 | 171.1 | 138.4 | |||||||||||||||||||
Other | 26.1 | 20.7 | 48.8 | 41.3 | |||||||||||||||||||
Total net revenue | $ | 1,059.7 | $ | 913.1 | $ | 2,049.0 | $ | 1,798.8 | |||||||||||||||
Payments for product subscriptions, industry collections, cloud subscriptions, and maintenance subscriptions are typically due up front with payment terms of 30 to 45 days. Payments on EBAs are typically due in annual installments over the contract term, with payment terms of 30 to 60 days. Autodesk does not have any material variable consideration, such as obligations for returns, refunds, warranties, or amounts due to customers for which significant estimation or judgment is required as of the reporting date.
Remaining performance obligations consist of total short-term, long-term, and unbilled deferred revenue. As of July 31, 2021, Autodesk had remaining performance obligations of $4.14 billion, which represents the total contract price allocated to remaining performance obligations, which are generally recognized over the next three years. We expect to recognize $2.85 billion or 69% of our remaining performance obligations as revenue during the next 12 months. We expect to recognize the remaining $1.29 billion or 31% of our remaining performance obligations as revenue thereafter.
The amount of remaining performance obligations may be impacted by the specific timing, duration, and size of customer subscription and support agreements, varying billing cycles of such agreements, the specific timing of customer renewals, and foreign currency fluctuations.
Contract Balances
We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to performance completed in advance of scheduled billings. Contract assets were not material as of July 31, 2021. Deferred
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revenue relates to billings in advance of performance under the contract. The primary changes in our contract assets and deferred revenues are due to our performance under the contracts and billings.
Revenue recognized during the three months ended July 31, 2021 and 2020, that was included in the deferred revenue balances at January 31, 2021 and 2020, was $725.9 million and $641.9 million, respectively. Revenue recognized during the six months ended July 31, 2021 and 2020, that was included in the deferred revenue balances at January 31, 2021 and 2020, was $1.56 billion and $1.43 billion, respectively. The satisfaction of performance obligations typically lags behind payments received under revenue contracts from customers.
4. Concentration of Credit Risk
Autodesk places its cash, cash equivalents, and marketable securities in highly liquid instruments with, and in the custody of, multiple diversified financial institutions globally with high credit ratings, and limits the amounts invested with any one institution, type of security, and issuer. Autodesk’s primary commercial banking relationship is with Citigroup Inc. and its global affiliates. Citibank, N.A., an affiliate of Citigroup, is one of the lead lenders and an agent in the syndicate of Autodesk’s $650.0 million line of credit facility. See Note 14, “Borrowing Arrangements,” in the Notes to Condensed Consolidated Financial Statements for further discussion.
Total sales to the Company's largest distributor Tech Data Corporation and its global affiliates (“Tech Data”) accounted for 36% of Autodesk’s total net revenue for both the three and six months ended July 31, 2021. Total sales to Tech Data accounted for 37% and 38% of Autodesk’s total net revenue for the three and six months ended July 31, 2020, respectively. The majority of the net revenue from sales to Tech Data is for sales made outside of the United States. In addition, Tech Data accounted for 33% and 26% of trade accounts receivable at July 31, 2021, and January 31, 2021, respectively. Ingram Micro Inc. (“Ingram Micro”) accounted for 9% of Autodesk's total net revenue during both the three and six months ended July 31, 2021. Total sales to Ingram Micro accounted for 10% of Autodesk’s total net revenue for both the three and six months ended July 31, 2020. No other customer accounted for more than 10% of Autodesk's total net revenue or trade accounts receivable for each of the respective periods.
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5. Financial Instruments
The following tables summarize the Company's financial instruments' amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category as of July 31, 2021, and January 31, 2021:
July 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||
Cash equivalents (1): | |||||||||||||||||||||||||||||||||||||||||||||||
Money market funds | $ | 206.5 | $ | — | $ | — | $ | 206.5 | $ | 206.5 | $ | — | $ | — | |||||||||||||||||||||||||||||||||
Other (2) | 1.6 | — | — | 1.6 | 1.0 | 0.6 | — | ||||||||||||||||||||||||||||||||||||||||
Marketable securities: | |||||||||||||||||||||||||||||||||||||||||||||||
Short-term | |||||||||||||||||||||||||||||||||||||||||||||||
Other (3) | — | 1.4 | — | 1.4 | 1.4 | — | — | ||||||||||||||||||||||||||||||||||||||||
Mutual funds (4) (5) | 70.2 | 22.8 | — | 93.0 | 93.0 | — | — | ||||||||||||||||||||||||||||||||||||||||
Strategic investments derivative assets (5) | 0.1 | 0.4 | (0.3) | 0.2 | — | — | 0.2 | ||||||||||||||||||||||||||||||||||||||||
Derivative contract assets (5) | 0.4 | 10.1 | (0.2) | 10.3 | — | 10.3 | — | ||||||||||||||||||||||||||||||||||||||||
Derivative contract liabilities (6) | — | — | (6.8) | (6.8) | — | (6.8) | — | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 278.8 | $ | 34.7 | $ | (7.3) | $ | 306.2 | $ | 301.9 | $ | 4.1 | $ | 0.2 |
____________________
(1)Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities.
(2)Consists of custody cash deposits and certificates of deposit.
(3)Consists of equity securities.
(4)See Note 12, “Deferred Compensation” for more information.
(5)Included in “Prepaid expenses and other current assets” or “Long-term other assets” in the accompanying Condensed Consolidated Balance Sheets.
(6)Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.
January 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||
Cash equivalents (1): | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial paper | $ | 36.0 | $ | — | $ | — | $ | 36.0 | $ | — | $ | 36.0 | $ | — | |||||||||||||||||||||||||||||||||
Money market funds | 686.9 | — | — | 686.9 | 686.9 | — | — | ||||||||||||||||||||||||||||||||||||||||
Other (2) | 4.4 | — | — | 4.4 | 4.0 | 0.4 | — | ||||||||||||||||||||||||||||||||||||||||
Marketable securities: | |||||||||||||||||||||||||||||||||||||||||||||||
Other (3) | 4.0 | — | — | 4.0 | — | 4.0 | — | ||||||||||||||||||||||||||||||||||||||||
Mutual funds (4) (5) | 64.5 | 16.5 | — | 81.0 | 81.0 | — | — | ||||||||||||||||||||||||||||||||||||||||
Strategic investments derivative asset (5) | 0.1 | 0.4 | (0.3) | 0.2 | — | — | 0.2 | ||||||||||||||||||||||||||||||||||||||||
Derivative contract assets (5) | 0.4 | 9.8 | (0.4) | 9.8 | — | 9.8 | — | ||||||||||||||||||||||||||||||||||||||||
Derivative contract liabilities (6) | — | — | (17.5) | (17.5) | — | (17.5) | — | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 796.3 | $ | 26.7 | $ | (18.2) | $ | 804.8 | $ | 771.9 | $ | 32.7 | $ | 0.2 |
____________________
(1)Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities.
(2)Consists of custody cash deposits and certificates of deposit.
(3)Consists of commercial paper and municipal bonds.
(4)See Note 12, “Deferred Compensation “ for more information.
(5)Included in “Prepaid expenses and other current assets,” or “Long-term other assets,” in the accompanying Condensed Consolidated Balance Sheets.
(6)Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.
12
Autodesk applies fair value accounting for certain financial assets and liabilities, which consist of cash equivalents, marketable securities, and other financial instruments, on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
As of both July 31, 2021, and January 31, 2021, Autodesk had no material unrealized losses, individually and in the aggregate, for marketable debt securities that are in a continuous unrealized loss position for greater than 12 months. Total unrealized gains for securities with net gains in accumulated other comprehensive income were not material for the six months ended July 31, 2021.
Autodesk monitors all marketable debt securities for potential credit losses by reviewing indicators such as, but not limited to, current credit rating, change in credit rating, credit outlook, and default risk. There were no allowances for credit losses as of both July 31, 2021, and January 31, 2021. There were no write offs of accrued interest receivables for the six months ended July 31, 2021 and 2020.
There was no realized gain or loss for the sales or redemptions of debt securities during both the six months ended July 31, 2021 and 2020. Gains and losses resulting from the sale or redemption of debt securities are recorded in “Interest and other expense, net” on the Company's Condensed Consolidated Statements of Operations.
There were zero and $4.0 million in proceeds from the sale and maturity of marketable debt securities for the three and six months ended July 31, 2021, respectively. Proceeds from the sale and maturity of marketable debt securities for both the three and six months ended July 31, 2020, was $11.0 million.
Strategic investment equity securities
As of July 31, 2021, and January 31, 2021, Autodesk had $129.5 million and $134.1 million, respectively, in direct investments in privately held companies. These strategic investment equity securities do not have readily determined fair values, and Autodesk uses the measurement alternative to account for the adjustment to these investments in a given quarter. If Autodesk determines that an impairment has occurred, Autodesk writes down the investment to its fair value.
Adjustments to the carrying value of our strategic investment equity securities with no readily determined fair values measured using the measurement alternative were as follows:
Six Months Ended July 31, | Cumulative Amount as of | ||||||||||||||||
2021 | 2020 | July 31, 2021 | |||||||||||||||
Upward adjustments (1) | $ | 5.6 | $ | 3.0 | $ | 21.6 | |||||||||||
Negative adjustments, including impairments (1) | (8.8) | (34.8) | (69.4) | ||||||||||||||
Net adjustments | $ | (3.2) | $ | (31.8) | $ | (47.8) |
____________________
(1)Included in “Interest and other expense, net” on the Company's Condensed Consolidated Statements of Operations.
During the three and six months ended July 31, 2021, Autodesk recognized gains of none and $8.1 million on the disposition of strategic investment equity securities, respectively. There were no recognized gains or losses on the disposition of strategic investment equity securities for both the three and six months ended July 31, 2020.
Foreign currency contracts designated as cash flow hedges
Autodesk uses foreign currency contracts to reduce the exchange rate impact on a portion of the net revenue or operating expense of certain anticipated transactions. These currency collars and forward contracts are designated and documented as cash flow hedges. The notional amounts of these contracts are presented net settled and were $1.08 billion at July 31, 2021, and $1.14 billion at January 31, 2021. Outstanding contracts are recognized as either assets or liabilities on the Company's Condensed Consolidated Balance Sheet at fair value. The majority of the net loss of $4.6 million remaining in “Accumulated other comprehensive loss” as of July 31, 2021, is expected to be recognized into earnings within the next 24 months.
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The location and amount of gain or loss recognized in income on cash flow hedges together with the total amount of income or expense presented in the Company's Condensed Consolidated Statements of Operations where the effects of the hedge are recorded were as follows for the three and six months ended July 31, 2021 and 2020:
Three Months Ended July 31, 2021 | ||||||||||||||||||||||||||||||||||||||
Net revenue | Cost of revenue | Operating expenses | ||||||||||||||||||||||||||||||||||||
Subscription revenue | Maintenance revenue | Cost of subscription and maintenance revenue | Marketing and sales | Research and development | General and administrative | |||||||||||||||||||||||||||||||||
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 1,016.7 | $ | 16.9 | $ | 76.0 | $ | 398.8 | $ | 276.9 | $ | 119.4 | ||||||||||||||||||||||||||
(Loss) on cash flow hedging relationships in Subtopic ASC 815-20 | ||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||
Amount of (loss) reclassified from accumulated other comprehensive income into income | $ | (4.5) | $ | (0.6) | $ | — | $ | (0.2) | $ | (0.2) | $ | (0.1) | ||||||||||||||||||||||||||
Six Months Ended July 31, 2021 | ||||||||||||||||||||||||||||||||||||||
Net revenue | Cost of revenue | Operating expenses | ||||||||||||||||||||||||||||||||||||
Subscription revenue | Maintenance Revenue | Cost of subscription and maintenance revenue | Marketing and sales | Research and development | General and administrative | |||||||||||||||||||||||||||||||||
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 1,964.2 | $ | 36.0 | $ | 144.5 | $ | 775.9 | $ | 542.4 | $ | 231.3 | ||||||||||||||||||||||||||
(Loss) gain on cash flow hedging relationships in Subtopic ASC 815-20 | ||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||
Amount of (loss) gain reclassified from accumulated other comprehensive income into income | $ | (9.4) | $ | (1.2) | $ | 0.3 | $ | 0.6 | $ | (0.2) | $ | 0.4 |
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Three Months Ended July 31, 2020 | ||||||||||||||||||||||||||||||||||||||
Net Revenue | Cost of revenue | Operating expenses | ||||||||||||||||||||||||||||||||||||
Subscription Revenue | Maintenance Revenue | Cost of subscription and maintenance revenue | Marketing and sales | Research and development | General and administrative | |||||||||||||||||||||||||||||||||
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 841.2 | $ | 51.2 | $ | 58.5 | $ | 350.9 | $ | 232.5 | $ | 93.2 | ||||||||||||||||||||||||||
Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20 | ||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||
Amount of gain (loss) reclassified from accumulated other comprehensive income into income | $ | 1.6 | $ | — | $ | (0.1) | $ | (0.5) | $ | — | $ | (0.2) | ||||||||||||||||||||||||||
Six Months Ended July 31, 2020 | ||||||||||||||||||||||||||||||||||||||
Net revenue | Cost of revenue | Operating expenses | ||||||||||||||||||||||||||||||||||||
Subscription revenue | Maintenance Revenue | Cost of subscription and maintenance revenue | Marketing and sales | Research and development | General and administrative | |||||||||||||||||||||||||||||||||
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 1,644.2 | $ | 113.3 | $ | 115.9 | $ | 692.2 | $ | 449.9 | $ | 198.0 | ||||||||||||||||||||||||||
Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20 | ||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||
Amount of gain (loss) reclassified from accumulated other comprehensive income into income | $ | 3.7 | $ | 0.6 | $ | (0.3) | $ | (1.3) | $ | (0.1) | $ | (0.6) |
Derivatives not designated as hedging instruments
Autodesk uses foreign currency contracts that are not designated as hedging instruments to reduce the exchange rate risk associated primarily with foreign currency denominated receivables, payables, and cash. The notional amounts of these foreign currency contracts are presented net settled and were $34.1 million at July 31, 2021, and $434.5 million at January 31, 2021.
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Fair Value of Derivative Instruments
The fair values of derivative instruments in Autodesk’s Condensed Consolidated Balance Sheets were as follows as of July 31, 2021, and January 31, 2021:
Balance Sheet Location | Fair Value at | ||||||||||||||||
July 31, 2021 | January 31, 2021 | ||||||||||||||||
Derivative Assets | |||||||||||||||||
Foreign currency contracts designated as cash flow hedges | Prepaid expenses and other current assets | $ | 8.7 | $ | 4.7 | ||||||||||||
Derivatives not designated as hedging instruments | Prepaid expenses and other current assets and long-term other assets | 1.8 | 5.3 | ||||||||||||||
Total derivative assets | $ | 10.5 | $ | 10.0 | |||||||||||||
Derivative Liabilities | |||||||||||||||||
Foreign currency contracts designated as cash flow hedges | Other accrued liabilities | $ | 3.9 | $ | 16.5 | ||||||||||||
Derivatives not designated as hedging instruments | Other accrued liabilities | 2.9 | 1.0 | ||||||||||||||
Total derivative liabilities | $ | 6.8 | $ | 17.5 |
The effects of derivatives designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three and six months ended July 31, 2021 and 2020 (amounts presented include any income tax effects):
Foreign Currency Contracts | |||||||||||||||||||||||
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Amount of gain (loss) recognized in accumulated other comprehensive income on derivatives (effective portion) | $ | 3.8 | $ | (18.6) | $ | 9.9 | $ | (13.5) | |||||||||||||||
Amount and location of (loss) gain reclassified from accumulated other comprehensive loss into income (effective portion) | |||||||||||||||||||||||
Net revenue | $ | (5.1) | $ | 1.6 | $ | (10.6) | $ | 4.3 | |||||||||||||||
Cost of revenue | — | (0.1) | 0.3 | (0.3) | |||||||||||||||||||
Operating expenses | (0.5) | (0.7) | 0.8 | (2.0) | |||||||||||||||||||
Total | $ | (5.6) | $ | 0.8 | $ | (9.5) | $ | 2.0 |
The effects of derivatives not designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three and six months ended July 31, 2021 and 2020 (amounts presented include any income tax effects):
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Amount and location of (loss) gain recognized on derivatives in net income | |||||||||||||||||||||||
Interest and other expense, net | $ | (1.7) | $ | (4.4) | $ | 5.2 | $ | (5.4) |
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6. Equity Compensation
Restricted Stock Units:
A summary of restricted stock activity for the six months ended July 31, 2021, is as follows:
Unvested restricted stock units | Weighted average grant date fair value per share | ||||||||||
(in thousands) | |||||||||||
Unvested restricted stock units at January 31, 2021 | 4,503.9 | $ | 191.91 | ||||||||
Granted | 1,786.0 | 290.13 | |||||||||
Vested | (646.2) | 166.75 | |||||||||
Canceled/Forfeited | (301.7) | 215.50 | |||||||||
Performance Adjustment (1) | (7.9) | 137.02 | |||||||||
Unvested restricted stock units at July 31, 2021 | 5,334.1 | $ | 228.45 |
_______________
(1)Based on Autodesk's financial results and relative total stockholder return for the fiscal 2021 performance period. The performance stock units were attained at rates ranging from 103.0% to 108.0% of the target award.
The fair value of the shares vested during the six months ended July 31, 2021 and 2020, was $173.1 million and $132.3 million, respectively.
During the six months ended July 31, 2021, Autodesk granted 1.5 million restricted stock units. Restricted stock units are not considered outstanding stock at the time of grant, as the holders of these units are not entitled to any of the rights of a stockholder, including voting right.
Autodesk recorded stock-based compensation expense related to restricted stock units of $114.9 million and $71.3 million during the three months ended July 31, 2021 and 2020, respectively. Autodesk recorded stock-based compensation expense related to restricted stock units of $204.5 million and $148.2 million during the six months ended July 31, 2021 and 2020, respectively.
During the six months ended July 31, 2021 and 2020, Autodesk settled liability-classified awards in the amount of zero and $28.7 million, respectively. The ultimate number of shares earned was based on the Autodesk closing stock price on the vesting date. As these awards were settled in a fixed dollar amount of shares, the awards were accounted for as a liability-classified award and were expensed using the straight-line method over the vesting period.
During the six months ended July 31, 2021, Autodesk granted 0.2 million performance stock units for which the ultimate number of shares earned is determined based on the achievement of performance criteria at the end of the stated service and performance period. The performance criteria for the performance stock units vested during the six months ended July 31, 2021, are based on revenue and free cash flow goals adopted by the Compensation and Human Resource Committee and, as applicable, total stockholder return compared against companies in the S&P North American Technology Software Index with a market capitalization over $2.0 billion (“Relative TSR”). The fair value of the performance stock units is expensed using the accelerated attribution method over the three-year vesting period and have the following vesting schedule:
•Up to one third of the performance stock units may vest following year one, depending upon the achievement of the performance criteria for fiscal 2022 as well as 1-year Relative TSR (covering year one).
•Up to one third of the performance stock units may vest following year two, depending upon the achievement of the performance criteria for year two as well as 2-year Relative TSR (covering years one and two).
•Up to one third of the performance stock units may vest following year three, depending upon the achievement of the performance criteria for year three as well as 3-year Relative TSR (covering years one, two and three).
Additionally, during the six months ended July 31, 2021, Autodesk granted 0.1 million performance stock units, as part of a program offering certain employees the option to receive equity in lieu of the opportunity to receive an annual cash incentive award. The ultimate number of shares earned is determined based on the achievement of performance criteria at the end of the stated service and performance period. The performance criteria for the performance stock units are based on revenue and Non-
17
GAAP income from operations targets adopted by the Compensation and Human Resource Committee. The fair value of these performance stock units is expensed using the accelerated attribution method over the one-year vesting period.
Performance stock units are not considered outstanding stock at the time of grant, as the holders of these units are not entitled to any of the rights of a stockholder, including voting rights.
Autodesk recorded stock-based compensation expense related to performance stock units of $20.2 million and $10.1 million for the three months ended July 31, 2021 and 2020, respectively. Autodesk recorded stock-based compensation expense related to performance stock units of $32.0 million and $17.5 million for the six months ended July 31, 2021 and 2020, respectively.
Common Stock:
Autodesk agreed to issue a fixed amount of $4.9 million in common stock at a future date to certain employees in connection with a fiscal 2021 acquisition. Issuance of the common stock is dependent on the respective employees’ continued employment through the vesting period. The number of shares to be issued will be determined based on the fair value of Autodesk’s common stock at the issuance date. Shares to be issued are estimated to be 15,000 based on the closing price of Autodesk’s common stock on July 30, 2021, the last trading day of the fiscal quarter. The awards are accounted for as liability-classified awards and are recognized as compensation expense using the straight-line method over the vesting period.
Autodesk issued 73,632 shares of restricted common stock to certain employees in connection with a fiscal 2021 acquisition. These shares of restricted common stock are subject to forfeiture by the employee if employment terminates prior to the three-year employment period. The fair value of the restricted common stock is recorded as compensation for post-acquisition services and recognized as expense using the straight-line method over the three-year repurchase period.
Autodesk issued 9,277 shares of restricted common stock to certain employees in connection with a fiscal 2022 acquisition. These shares of restricted common stock were recorded as “Prepaid expenses and other current assets” and “Long-term other assets” on our Condensed Consolidated Balance Sheets and will be amortized to stock-based compensation expense for post-acquisition services using the straight-line method over the two-year vesting period. See Note 8, “Acquisitions,” for further discussion.
Autodesk agreed to issue a fixed amount of $13.1 million in shares of common stock to certain employees in connection with a fiscal 2022 acquisition. Issuance of the common stock is dependent on the respective employees’ continued employment through the vesting period. The number of shares to be issued will be determined based on the volume weighted average closing price (“VWAP”) of Autodesk’s common stock for the ninety consecutive trading day period ending on the release date. Shares to be issued are estimated to be 46,000 based on the VWAP of Autodesk’s common stock for the ninety consecutive trading day period ending July 30, 2021, the last trading day of the fiscal quarter. The awards are accrued as liability-classified awards and are recognized as compensation expense using the straight-line method over the vesting period. See Note 8, “Acquisitions,” for further discussion.
Autodesk recorded stock-based compensation expense related to common stock shares of $4.3 million and $6.9 million for the three and six months ended July 31, 2021, respectively. Autodesk recorded no stock-based compensation expense related to common stock shares for both the three and six months ended July 31, 2020.
1998 Employee Qualified Stock Purchase Plan (“ESPP”)
Under Autodesk’s ESPP, which was approved by stockholders in 1998, eligible employees may purchase shares of Autodesk’s common stock at their discretion using up to 15% of their eligible compensation, subject to certain limitations, at 85% of the lower of Autodesk's closing price (fair market value) on the offering date or the exercise date. The offering period for ESPP awards consists of four, six-month exercise periods within a 24-month offering period.
18
A summary of the ESPP activity for the six months ended July 31, 2021 and 2020, is as follows:
Six Months Ended July 31, | |||||||||||
2021 | 2020 | ||||||||||
Issued shares (in millions) | 0.5 | 0.5 | |||||||||
Average price of issued shares | $ | 128.02 | $ | 122.54 | |||||||
Weighted average grant date fair value of shares granted under the ESPP (1) | $ | 91.17 | $ | 45.70 |
_______________
(1)Calculated as of the award grant date using the Black-Scholes Merton (“BSM”) option pricing model.
Stock-based Compensation Expense
The following table summarizes stock-based compensation expense for the three and six months ended July 31, 2021 and 2020, respectively, as follows:
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Cost of subscription and maintenance revenue | $ | 7.5 | $ | 4.2 | $ | 12.8 | $ | 7.9 | |||||||||||||||
Cost of other revenue | 2.4 | 1.5 | 4.2 | 3.0 | |||||||||||||||||||
Marketing and sales | 64.5 | 43.4 | 112.8 | 84.1 | |||||||||||||||||||
Research and development | 60.1 | 35.3 | 106.8 | 68.2 | |||||||||||||||||||
General and administrative | 18.7 | 11.5 | 32.4 | 30.9 | |||||||||||||||||||
Stock-based compensation expense related to stock awards and ESPP purchases | 153.2 | 95.9 | 269.0 | 194.1 | |||||||||||||||||||
Tax benefit | (4.1) | (0.2) | (20.1) | (0.3) | |||||||||||||||||||
Stock-based compensation expense related to stock awards and ESPP purchases, net of tax | $ | 149.1 | $ | 95.7 | $ | 248.9 | $ | 193.8 | |||||||||||||||
Stock-based Compensation Expense Assumptions
Autodesk determines the grant date fair value of its share-based payment awards using a BSM option pricing model or the quoted stock price on the date of grant, unless the awards are subject to market conditions, in which case Autodesk uses a binomial-lattice model (e.g., Monte Carlo simulation model). The Monte Carlo simulation model uses multiple input variables to estimate the probability that market conditions will be achieved. Autodesk uses the following assumptions to estimate the fair value of stock-based awards:
Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | ||||||||||||||||||||||
Performance Stock Units | ESPP (1) | Performance Stock Units (2) | ESPP (2) | ||||||||||||||||||||
Range of expected volatility | 36.9% | 36.5 - 41.8% | 50.7% | 39.4 - 45.8% | |||||||||||||||||||
Range of expected lives (in years) | N/A | 0.5- 2.0 | N/A | 0.5 - 2.0 | |||||||||||||||||||
Expected dividends | —% | —% | —% | —% | |||||||||||||||||||
Range of risk-free interest rates | 0.1% | 0.1- 0.2% | 0.3% | 0.3 - 0.5% | |||||||||||||||||||
_______________
(1)There were no ESPP awards granted during the three months ended July 31, 2021.
(2)There were no ESPP awards granted during the three months ended July 31, 2020. There were no performance stock units granted during the three months ended July 31, 2020, where the fair value was estimated by a Monte Carlo simulation model.
Autodesk estimates expected volatility for stock-based awards based on the average of the following two measures: (1) a measure of historical volatility in the trading market for the Company’s common stock, and (2) the implied volatility of traded forward call options to purchase shares of the Company’s common stock. The expected volatility for performance stock units subject to market conditions includes the expected volatility of Autodesk's peer companies within the S&P North American Technology Software Index with a market capitalization over $2.0 billion, depending on the award type.
The range of expected lives of ESPP awards are based upon the four, six-month exercise periods within a 24-month offering period.
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Autodesk does not currently pay, and does not anticipate paying in the foreseeable future, any cash dividends. Consequently, an expected dividend yield of zero is used in the BSM option pricing model and the Monte Carlo simulation model.
The risk-free interest rate used in the BSM option pricing model and the Monte Carlo simulation model for stock-based awards is the historical yield on U.S. Treasury securities with equivalent remaining lives.
Autodesk recognizes expense only for the stock-based awards that ultimately vest. Autodesk accounts for forfeitures of our stock-based awards as those forfeitures occur.
7. Income Tax
Autodesk had income tax expense of $23.2 million, relative to pre-tax income of $138.8 million for the three months ended July 31, 2021, and income tax expense of $30.8 million, relative to pre-tax income of $129.0 million for the three months ended July 31, 2020. Income tax expense for the three months ended July 31, 2021, reflects a decrease in tax expense as a result of the jurisdictional mix of year-to-date earnings.
Autodesk had income tax benefit of $1.0 million, relative to pre-tax income of $270.2 million for the six months ended July 31, 2021, and income tax expense of $54.8 million, relative to pre-tax income of $219.5 million for the six months ended July 31, 2020. Income tax benefit for the six months ended July 31, 2021, reflects a decrease in tax expense due to a discrete tax benefit primarily related to a Supreme Court decision in India on the taxability of software license payments to nonresidents and the associated withholding taxes, offset by an increase in tax expense from jurisdictional mix of year-to-date earnings.
Autodesk regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, Autodesk considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. We have maintained a valuation allowance on our Netherlands, Canada, California, Michigan and U.S. capital loss deferred tax assets as it is more likely than not that some or all of the deferred tax assets will not be realized.
As of July 31, 2021, the Company had $203.4 million of gross unrecognized tax benefits, of which $33.0 million would reduce our valuation allowance, if recognized. The remaining $170.4 million would impact the effective tax rate, if recognized. It is possible that the amount of unrecognized tax benefits will decrease in the next 12 months for an audit settlement of approximately $8.1 million.
8. Acquisitions
The results of operations for the following acquisitions are included in the accompanying Condensed Consolidated Statements of Operations since their respective acquisition dates. Pro forma results of operations have not been presented because the effects of these acquisitions were not material to Autodesk’s Condensed Consolidated Financial Statements.
Upchain
On May 11, 2021, Autodesk acquired 100% of the outstanding stock of Upchain Inc. (“Upchain”), a cloud-based provider of product lifecycle management and product data management systems, for approximately $126.7 million in cash and Autodesk will issue a fixed amount of $13.1 million in common stock at future dates to certain employees in connection with the acquisition for a total consideration of $139.8 million. Of the total consideration transferred, $123.6 million is considered purchase consideration. Of the remaining amount, $13.1 million is accrued as liability-classified awards and recognized as compensation expense using the straight-line method over the vesting period, and $3.1 million was recorded as stock-based compensation expense during the fiscal quarter ended July 31, 2021. Issuance of the $13.1 million fixed value in common stock is dependent on the respective employees’ continued employment and vests 40% and 60% on the first and second anniversaries of the closing date, respectively. The number of shares will be determined based on the VWAP of Autodesk’s common stock for the ninety consecutive trading day period ending on the release date. The number of shares is estimated to be 46,000 based on the VWAP of Autodesk’s common stock for the ninety consecutive trading day period ending July 30, 2021, the last trading day of the fiscal quarter. See also Note 6, “Equity Compensation”.
Autodesk expects to integrate Upchain’s unified cloud platform in Autodesk solutions to centralize data management and process management.
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Innovyze
On March 31, 2021, Autodesk acquired all of the outstanding stock of Storm UK Holdco Limited, the parent of Innovyze, Inc. (“Innovyze”), a global leader in water infrastructure software. Innovyze is expected to provide comprehensive water modeling solutions that augment Autodesk’s BIM offerings in civil engineering, and is expected to extend Autodesk’s presence into operations and maintenance of water infrastructure assets.
The acquisition-date fair value of the consideration transferred totaled $1,040.9 million, which consisted of $1,038.3 million of cash and 9,277 shares of Autodesk’s restricted common stock at an aggregate fair value of $2.6 million. Of the total consideration transferred, $1,038.3 million is considered purchase consideration. The remaining amount of $2.6 million was recorded in “Prepaid expenses and other current assets” and “Long-term other assets”. The 9,277 shares of restricted common stock are subject to forfeiture until the second anniversary of the acquisition closing date. 50% are released from restriction on both the first and second anniversaries subject to continued employment. See also Note 6, “Equity Compensation”.
Purchase Price Allocation
The acquisitions were accounted for as business combinations, and Autodesk recorded the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of the respective acquisition. The fair values assigned to the identifiable intangible assets acquired were based on estimates and assumptions determined by management. Autodesk recorded the excess of consideration transferred over the aggregate fair values as goodwill. The goodwill recorded was primarily attributable to synergies expected to arise after the respective acquisition. Goodwill of $86.7 million and $376.2 million is deductible for U.S. income tax purposes for Upchain and Innovyze, respectively. The transaction costs related to the acquisitions were not material.
The following table summarizes the fair value of the assets acquired and liabilities assumed by major class for the business combinations that were completed during the three and six months ended July 31, 2021:
Innovyze | Upchain | Total | |||||||||||||||
Developed technologies | $ | 93.0 | $ | 17.6 | $ | 110.6 | |||||||||||
Customer relationships | 221.0 | 10.4 | 231.4 | ||||||||||||||
Trade name | 4.0 | 0.4 | 4.4 | ||||||||||||||
Backlog | 0.5 | — | 0.5 | ||||||||||||||
Goodwill | 767.2 | 98.3 | 865.5 | ||||||||||||||
Deferred revenue and long-term deferred revenue | (12.3) | (2.6) | (14.9) | ||||||||||||||
Long-term deferred income taxes | (42.4) | (0.7) | (43.1) | ||||||||||||||
Net tangible assets | 7.3 | 0.2 | 7.5 | ||||||||||||||
Total | $ | 1,038.3 | $ | 123.6 | $ | 1,161.9 |
For the business combinations, the allocation of purchase price consideration to certain assets and liabilities as well as the final amount of purchase consideration are not yet finalized. For the items not yet finalized, Autodesk's estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized are amounts for tax assets and liabilities, deferred revenue, and residual goodwill.
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9. Intangible Assets, Net
The following tables summarize the Company's Intangible assets, net, as of July 31, 2021, and January 31, 2021:
July 31, 2021 | |||||||||||||||||
Gross Carrying Amount (1) | Accumulated Amortization | Net | |||||||||||||||
Customer relationships | $ | 668.9 | $ | (360.3) | $ | 308.6 | |||||||||||
Developed technologies | 817.1 | (633.4) | 183.7 | ||||||||||||||
Trade names and patents | 116.0 | (97.0) | 19.0 | ||||||||||||||
Total intangible assets | $ | 1,602.0 | $ | (1,090.7) | $ | 511.3 |
(1)Includes the effects of foreign currency translation.
January 31, 2021 | |||||||||||||||||
Gross Carrying Amount (1) | Accumulated Amortization | Net | |||||||||||||||
Customer relationships | $ | 437.3 | $ | (345.1) | $ | 92.2 | |||||||||||
Developed technologies | 698.4 | (609.8) | 88.6 | ||||||||||||||
Trade names and patents | 111.5 | (93.0) | 18.5 | ||||||||||||||
Total intangible assets | $ | 1,247.2 | $ | (1,047.9) | $ | 199.3 |
_______________
(1)Includes the effects of foreign currency translation.
10. Cloud Computing Arrangements
Autodesk enters into certain cloud-based software hosting arrangements that are accounted for as service contracts. Costs incurred for these arrangements are capitalized for application development activities, if material, and immediately expensed for preliminary project activities and post-implementation activities. Autodesk amortizes the capitalized development costs straight-line over the fixed, non-cancellable term of the associated hosting arrangement plus any reasonably certain renewal periods. The capitalized costs are included in “Prepaid expenses and other current assets” and “Long-term other assets” on our Condensed Consolidated Balance Sheets. Capitalized costs were $102.7 million and $72.2 million at July 31, 2021, and January 31, 2021, respectively. Accumulated amortization was $7.7 million and $4.9 million at July 31, 2021, and January 31, 2021, respectively. Amortization expense for the three months ended July 31, 2021 and 2020, was $1.4 million and $0.8 million, respectively. Amortization expense for the six months ended July 31, 2021 and 2020, was $2.8 million and $1.7 million, respectively.
11. Goodwill
Goodwill consists of the excess of the consideration transferred over the fair value of net assets acquired in business combinations. The following table summarizes the changes in the carrying amount of goodwill for the six months ended July 31, 2021, (in millions):
Balance as of January 31, 2021 | $ | 2,855.7 | |||
Less: accumulated impairment losses as of January 31, 2021 | (149.2) | ||||
Net balance as of January 31, 2021 | 2,706.5 | ||||
Additions arising from acquisitions during the period | 865.5 | ||||
Effect of foreign currency translation and measurement period adjustments (1) | (9.8) | ||||
Balance as of July 31, 2021 | $ | 3,562.2 |
_______________
(1)Measurement period adjustments reflect revisions made to the Company's preliminary determination of estimated fair value of assets and liabilities assumed.
Autodesk operates as a single operating segment and single reporting unit. As such, when Autodesk tests goodwill for impairment annually in its fourth fiscal quarter, it is performed on the Company's single reporting unit. Autodesk performs
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impairment testing more often if circumstances indicate a potential impairment may exist, or if events have affected the composition of reporting units.
When goodwill is assessed for impairment, Autodesk has the option to perform an assessment of qualitative factors of impairment (“optional assessment”) prior to necessitating a quantitative impairment test. Should the optional assessment be used for any given fiscal year, qualitative factors to consider include cost factors; financial performance; legal, regulatory, contractual, political, business, or other factors; entity specific factors; industry and market considerations, macroeconomic conditions, and other relevant events and factors affecting the reporting unit. If, after assessing the totality of events or circumstances, it is more likely than not that the fair value of the reporting unit is greater than its carrying value, then performing the quantitative impairment test is unnecessary.
The quantitative impairment test is necessary when either Autodesk does not use the optional assessment or, as a result of the optional assessment, it is not more likely than not that the fair value of the reporting unit is greater than its carrying value. In situations in which an entity’s reporting unit is publicly traded, the fair value of the company may be approximated by its market capitalization in performing the quantitative impairment test.
Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment charge recorded in our Condensed Consolidated Statements of Operations. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis. The value of Autodesk’s goodwill could also be impacted by future adverse changes such as: (i) declines in Autodesk’s actual financial results, (ii) a sustained decline in Autodesk’s market capitalization, (iii) a significant slowdown in the worldwide economy or the industries Autodesk serves, or (iv) changes in Autodesk’s business strategy.
There was no goodwill impairment during both the three and six months ended July 31, 2021 and 2020.
12. Deferred Compensation
At July 31, 2021, Autodesk had investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans and a corresponding deferred compensation liability totaling $93.0 million. Of this amount, $7.7 million was classified as current and $85.3 million was classified as non-current in the Condensed Consolidated Balance Sheets. Of the $81.0 million related to the investments in a rabbi trust as of January 31, 2021, $7.3 million was classified as current and $73.7 million was classified as non-current. The current and non-current asset portions of the investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans are recorded in the Condensed Consolidated Balance Sheets under “Prepaid expenses and other current assets” and “Long-term other assets,” respectively. The current and non-current portions of the liability are recorded in the Condensed Consolidated Balance Sheets under “Accrued compensation” and “Long-term other liabilities,” respectively. See Note 1 “Basis of Presentation” for a change in the presentation and immaterial correction of an error on the Condensed Consolidated Balance Sheets for investments in debt and equity securities that are held in a rabbi trust.
Costs to obtain a contract with a customer
Sales commissions earned by our internal sales personnel and our reseller partners are considered incremental and recoverable costs of obtaining a contract with a customer. The ending balance of assets recognized from costs to obtain a contract with a customer was $114.0 million as of July 31, 2021, and $120.9 million as of January 31, 2021. These assets are recorded in “Prepaid expenses and other current assets” and “Long-term other assets” in the Condensed Consolidated Balance Sheets. Amortization expense related to assets recognized from costs to obtain a contract with a customer was $28.2 million and $54.0 million during the three and six months ended July 31, 2021, respectively. Amortization expense related to assets recognized from costs to obtain a contract with a customer was $23.6 million and $46.4 million during the three and six months ended July 31, 2020, respectively. Autodesk did not recognize any contract cost impairment losses during the three and six months ended July 31, 2021 and 2020.
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13. Computer Equipment, Software, Leasehold Improvements, and Furniture, Net
Computer equipment, software, leasehold improvements, and furniture and equipment and the related accumulated depreciation were as follows:
July 31, 2021 | January 31, 2021 | ||||||||||
Computer hardware, at cost | $ | 129.9 | $ | 153.3 | |||||||
Computer software, at cost | 55.1 | 57.9 | |||||||||
Leasehold improvements, land and buildings, at cost | 350.2 | 335.9 | |||||||||
Furniture and equipment, at cost | 95.9 | 88.4 | |||||||||
631.1 | 635.5 | ||||||||||
Less: Accumulated depreciation | (432.8) | (442.7) | |||||||||
Computer hardware, software, leasehold improvements, and furniture and equipment, net | $ | 198.3 | $ | 192.8 |
14. Borrowing Arrangements
In January 2020, Autodesk issued $500.0 million aggregate principal amount of 2.85% notes due January 15, 2030 (“2020 Notes”). Net of a discount of $1.1 million and issuance costs of $4.8 million, Autodesk received net proceeds of $494.1 million from issuance of the 2020 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2020 Notes using the effective interest method. The proceeds of the 2020 Notes were used for the repayment of the $450.0 million 2015 Notes, as defined below, and the remainder is available for general corporate purposes.
In December 2018, Autodesk entered into a credit agreement by and among Autodesk, the lenders from time to time party thereto, and Citibank, N.A., as agent, which provides for an unsecured revolving loan facility in the aggregate principal amount of $650.0 million with an option, subject to customary conditions, to request an increase in the amount of the credit facility by up to an additional $350.0 million, and is available for working capital or other business needs. The credit agreement contains customary covenants that could, among other things, restrict the imposition of liens on Autodesk’s assets, and restrict Autodesk’s ability to incur additional indebtedness or make dispositions of assets if Autodesk fails to maintain compliance with the financial covenants. The credit agreement financial covenants consist of (1) a minimum interest coverage ratio of 3.00:1.0 and (2) a maximum leverage ratio of 3.00:1.0. At July 31, 2021, Autodesk was in compliance with the credit agreement covenants. Revolving loans under the credit agreement bear interest, at Autodesk’s option, at either (i) a floating rate per annum equal to the base rate plus a margin of between 0.000% and 0.500%, depending on Autodesk’s Public Debt Rating (as defined in the credit agreement) or (ii) a per annum rate equal to the rate at which dollar deposits are offered in the London interbank market, plus a margin of between 0.900% and 1.500%, depending on Autodesk’s Public Debt Rating. The maturity date on the credit agreement is December 2023. At July 31, 2021, Autodesk had no outstanding borrowings under the credit agreement.
In June 2017, Autodesk issued $500.0 million aggregate principal amount of 3.5% notes due June 15, 2027 (the “2017 Notes”). Net of a discount of $3.1 million and issuance costs of $4.9 million, Autodesk received net proceeds of $492.0 million from issuance of the 2017 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2017 Notes using the effective interest method. The proceeds of the 2017 Notes have been used for the repayment of $400.0 million of debt due December 15, 2017, and the remainder is available for general corporate purposes.
In June 2015, Autodesk issued $300.0 million aggregate principal amount of 4.375% notes due June 15, 2025 (“2015 Notes”). Net of a discount of $1.1 million, and issuance costs of $2.5 million, Autodesk received net proceeds of $296.4 million from issuance of the 2015 Notes. Both the discount and issuance costs are being amortized to interest expense over the respective term of the 2015 Notes using the effective interest method. The proceeds of the 2015 Notes is available for general corporate purposes.
In December 2012, Autodesk issued $350.0 million aggregate principal amount of 3.6% notes due December 15, 2022 (“2012 Notes”). Autodesk received net proceeds of $346.7 million from issuance of the 2012 Notes, net of a discount of $0.5 million and issuance costs of $2.8 million. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the 2012 Notes using the effective interest method. The proceeds of the 2012 Notes are available for general corporate purposes.
The 2020 Notes, 2017 Notes, 2015 Notes and the 2012 Notes may all be redeemed at any time, subject to a make whole premium. In addition, upon the occurrence of certain change of control triggering events, Autodesk may be required to repurchase all the aforementioned notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to
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the date of repurchase. All notes contain restrictive covenants that limit Autodesk's ability to create certain liens, to enter into certain sale and leaseback transactions and to consolidate or merge with, or convey, transfer, or lease all or substantially all of its assets, subject to important qualifications and exceptions.
Based on the quoted market prices, the approximate fair value of the notes as of July 31, 2021, were as follows:
Aggregate Principal Amount | Fair value | ||||||||||
2012 Notes | $ | 350.0 | $ | 362.4 | |||||||
2015 Notes | 300.0 | 336.4 | |||||||||
2017 Notes | 500.0 | 557.1 | |||||||||
2020 Notes | 500.0 | 534.7 |
The expected future principal payments for all borrowings as of July 31, 2021, were as follows (in millions):
Fiscal year ending | |||||
2022 (remainder) | $ | — | |||
2023 | 350.0 | ||||
2024 | — | ||||
2025 | — | ||||
2026 | 300.0 | ||||
Thereafter | 1,000.0 | ||||
Total principal outstanding | $ | 1,650.0 |
15. Leases
Autodesk has operating leases for real estate, vehicles, and certain equipment. Leases have remaining lease terms of less than 1 year to 69 years, some of which include options to extend the lease with renewal terms from 1 year to 10 years and some of which include options to terminate the leases from less than 1 year to 9 years. Options to extend the lease are included in the lease liability if they are reasonably certain of being exercised. Payments under our lease arrangements are primarily fixed; however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the operating lease assets and liabilities. These amounts include payments affected by the Consumer Price Index, payments for common area maintenance that are subject to annual reconciliation, and payments for maintenance and utilities. The Company’s leases do not contain residual value guarantees or material restrictive covenants. Short-term leases are recognized in the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term. Short-term lease expense was not material for the periods presented. Changes in operating lease right-of-use assets and operating lease liabilities are presented net in the “accounts payable and other liabilities” line in the Condensed Consolidated Statements of Cash Flows.
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The components of lease cost were as follows:
Three Months Ended July 31, 2021 | |||||||||||||||||||||||||||||||||||
Cost of subscription and maintenance revenue | Cost of other revenue | Marketing and sales | Research and development | General and administrative | Total | ||||||||||||||||||||||||||||||
Operating lease cost | $ | 2.1 | $ | 0.5 | $ | 10.7 | $ | 7.7 | $ | 3.6 | $ | 24.6 | |||||||||||||||||||||||
Variable lease cost | 0.4 | 0.2 | 1.9 | 1.4 | 0.6 | 4.5 | |||||||||||||||||||||||||||||
Six Months Ended July 31, 2021 | |||||||||||||||||||||||||||||||||||
(in millions) | Cost of subscription and maintenance revenue | Cost of other revenue | Marketing and sales | Research and development | General and administrative | Total | |||||||||||||||||||||||||||||
Operating lease cost | $ | 4.0 | $ | 1.0 | $ | 21.5 | $ | 15.7 | $ | 7.3 | $ | 49.5 | |||||||||||||||||||||||
Variable lease cost | 0.8 | 0.3 | 4.2 | 3.1 | 1.4 | 9.8 |
Three Months Ended July 31, 2020 | |||||||||||||||||||||||||||||||||||
Cost of subscription and maintenance revenue | Cost of other revenue | Marketing and sales | Research and development | General and administrative | Total | ||||||||||||||||||||||||||||||
Operating lease cost | $ | 1.7 | $ | 0.4 | $ | 10.6 | $ | 7.8 | $ | 4.2 | $ | 24.7 | |||||||||||||||||||||||
Variable lease cost | 0.1 | — | 1.0 | 0.7 | 0.5 | 2.3 | |||||||||||||||||||||||||||||
Six Months Ended July 31, 2020 | |||||||||||||||||||||||||||||||||||
(in millions) | Cost of subscription and maintenance revenue | Cost of other revenue | Marketing and sales | Research and development | General and administrative | Total | |||||||||||||||||||||||||||||
Operating lease cost | $ | 3.7 | $ | 1.1 | $ | 22.1 | $ | 15.7 | $ | 7.6 | $ | 50.2 | |||||||||||||||||||||||
Variable lease cost | 0.4 | 0.1 | 2.5 | 1.8 | 0.9 | 5.7 |
Supplemental operating cash flow information related to leases is as follows:
Six Months Ended July 31, | |||||||||||
2021 | 2020 | ||||||||||
Cash paid for operating leases included in operating cash flows (1) | $ | 48.3 | $ | 47.6 | |||||||
Non-cash operating lease liabilities arising from obtaining operating lease right-of-use assets | 9.7 | 18.4 |
_______________
(1) Includes $9.8 million and $5.7 million in variable lease payments for the six months ended July 31, 2021 and 2020, respectively, not included in “Operating lease liabilities” and “Long-term operating lease liabilities” on the Condensed Consolidated Balance Sheets.
The weighted average remaining lease term for operating leases is 7.0 and 7.3 years at July 31, 2021, and January 31, 2021, respectively. The weighted average discount rate was 2.62% and 2.69% at July 31, 2021, and January 31, 2021, respectively.
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Maturities of operating lease liabilities were as follows:
Fiscal year ending | |||||
2022 (remainder) | $ | 47.5 | |||
2023 | 99.4 | ||||
2024 | 81.5 | ||||
2025 | 60.6 | ||||
2026 | 46.0 | ||||
Thereafter | 149.0 | ||||
484.0 | |||||
Less imputed interest | 37.4 | ||||
Present value of operating lease liabilities | $ | 446.6 |
As of July 31, 2021, Autodesk had additional operating lease minimum lease payments of $21.4 million for executed leases that have not yet commenced, primarily for office locations.
16. Commitments and Contingencies
Guarantees and Indemnifications
In the normal course of business, Autodesk provides indemnifications of varying scopes, including limited product warranties and indemnification of customers against claims of intellectual property infringement made by third parties arising from the use of its products or services. Autodesk accrues for known indemnification issues if a loss is probable and can be reasonably estimated. Historically, costs related to these indemnifications have not been significant, and because potential future costs are highly variable, Autodesk is unable to estimate the maximum potential impact of these indemnifications on its future results of operations.
In connection with the purchase, sale, or license of assets or businesses with third parties, Autodesk has entered into or assumed customary indemnification agreements related to the assets or businesses purchased, sold, or licensed. Historically, costs related to these indemnifications have not been significant, and because potential future costs are highly variable, Autodesk is unable to estimate the maximum potential impact of these indemnifications on its future results of operations.
As permitted under Delaware law, Autodesk has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at Autodesk’s request in such capacity. The maximum potential amount of future payments Autodesk could be required to make under these indemnification agreements is unlimited; however, Autodesk has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable Autodesk to recover a portion of any future amounts paid. Autodesk believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
Legal Proceedings
Autodesk is involved in a variety of claims, suits, investigations, inquiries, and proceedings in the normal course of business including claims of alleged infringement of intellectual property rights, commercial, employment, tax, prosecution of unauthorized use, business practices, and other matters. Autodesk routinely reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any matter is considered probable and the amount can be reasonably estimated, Autodesk records a liability for the estimated loss. Because of inherent uncertainties related to these legal matters, Autodesk bases its loss accruals on the best information available at the time. As additional information becomes available, Autodesk reassesses its potential liability and may revise its estimates. In the Company's opinion, resolution of pending matters is not expected to have a material adverse impact on its consolidated results of operations, cash flows, or its financial position. Given the unpredictable nature of legal proceedings, there is a reasonable possibility that an unfavorable resolution of one or more such proceedings could in the future materially affect the Company's results of operations, cash flows, or financial position in a particular period, however, based on the information known by the Company as of the date of this filing and the rules and regulations applicable to the preparation of the Company's financial statements, any such amount is either immaterial or it is not possible to provide an estimated amount of any such potential loss.
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17. Stockholders' Equity
Changes in stockholders' equity by component, net of tax, as of July 31, 2021, are as follows:
Common stock and additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders' equity | ||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||
Balances, January 31, 2021 | 219.6 | $ | 2,578.9 | $ | (125.9) | $ | (1,487.5) | $ | 965.5 | ||||||||||||||||||||
Common shares issued under stock plans | 0.9 | 9.0 | 9.0 | ||||||||||||||||||||||||||
Stock-based compensation expense | 114.1 | 114.1 | |||||||||||||||||||||||||||
Post-combination expense related to equity awards assumed | 0.1 | 0.1 | |||||||||||||||||||||||||||
Shares issued related to business combination | 2.6 | 2.6 | |||||||||||||||||||||||||||
Net income | 155.6 | 155.6 | |||||||||||||||||||||||||||
Other comprehensive income | 24.2 | 24.2 | |||||||||||||||||||||||||||
Repurchase and retirement of common shares (1) | (0.5) | (65.3) | (77.4) | (142.7) | |||||||||||||||||||||||||
Balances, April 30, 2021 | 220.0 | 2,639.4 | (101.7) | (1,409.3) | 1,128.4 | ||||||||||||||||||||||||
Common shares issued under stock plans | 0.1 | (6.5) | (6.5) | ||||||||||||||||||||||||||
Stock-based compensation expense | 148.2 | 148.2 | |||||||||||||||||||||||||||
Post-combination expense related to equity awards assumed | 0.1 | 0.1 | |||||||||||||||||||||||||||
Net income | 115.6 | 115.6 | |||||||||||||||||||||||||||
Other comprehensive loss | (11.7) | (11.7) | |||||||||||||||||||||||||||
Repurchase and retirement of common shares (1) | (0.2) | (0.5) | (45.8) | (46.3) | |||||||||||||||||||||||||
Balances, July 31, 2021 | 219.9 | $ | 2,780.7 | $ | (113.4) | $ | (1,339.5) | $ | 1,327.8 | ||||||||||||||||||||
________________
(1)During the three and six months ended July 31, 2021, Autodesk repurchased 0.2 million and 0.7 million shares at an average repurchase price of $282.67 and $278.34 per share, respectively. At July 31, 2021, 11.4 million shares remained available for repurchase under the repurchase program approved by the Board of Directors.
Changes in stockholders' equity (deficit) by component, net of tax, as of July 31, 2020, are as follows:
Common stock and additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders' equity (deficit) | ||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||
Balances, January 31, 2020 | 219.4 | $ | 2,317.0 | $ | (160.3) | $ | (2,295.8) | $ | (139.1) | ||||||||||||||||||||
Common shares issued under stock plans | 1.0 | 24.3 | — | — | 24.3 | ||||||||||||||||||||||||
Stock-based compensation expense | — | 88.2 | — | — | 88.2 | ||||||||||||||||||||||||
Settlement of liability-classified restricted stock units | — | 28.7 | — | — | 28.7 | ||||||||||||||||||||||||
Post-combination expense related to equity awards assumed | — | 0.1 | — | — | 0.1 | ||||||||||||||||||||||||
Net income | — | — | — | 66.5 | 66.5 | ||||||||||||||||||||||||
Other comprehensive loss | — | — | (18.8) | — | (18.8) | ||||||||||||||||||||||||
Repurchase and retirement of common shares (1) | (1.2) | (57.0) | — | (132.0) | (189.0) | ||||||||||||||||||||||||
Balances, April 30, 2020 | 219.2 | 2,401.3 | (179.1) | (2,361.3) | (139.1) | ||||||||||||||||||||||||
Common shares issued under stock plans | 0.2 | (4.6) | — | — | (4.6) | ||||||||||||||||||||||||
Stock-based compensation expense | — | 95.9 | — | — | 95.9 | ||||||||||||||||||||||||
Post combination expense related to equity awards assumed | — | 0.1 | — | — | 0.1 | ||||||||||||||||||||||||
Net income | — | — | — | 98.2 | 98.2 | ||||||||||||||||||||||||
Other comprehensive income | — | — | 24.6 | — | 24.6 | ||||||||||||||||||||||||
Repurchase and retirement of common shares (1) | (0.1) | — | — | (7.8) | (7.8) | ||||||||||||||||||||||||
Balances, July 31, 2020 | 219.3 | $ | 2,492.7 | $ | (154.5) | $ | (2,270.9) | $ | 67.3 | ||||||||||||||||||||
________________
(1)During the three and six months ended July 31, 2020, Autodesk repurchased 0.1 million and 1.3 million shares at an average repurchase price of $216.84 and $155.20 per share, respectively. At July 31, 2020, 13.5 million shares remained available for repurchase under the repurchase program approved by the Board of Directors.
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18. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of taxes, consisted of the following at July 31, 2021:
Net Unrealized Gains (Losses) on Derivative Instruments | Net Unrealized Gains on Available-for-Sale Debt Securities | Defined Benefit Pension Components | Foreign Currency Translation Adjustments | Total | |||||||||||||||||||||||||
Balances, January 31, 2021 | $ | (24.1) | $ | 6.4 | $ | (21.3) | $ | (86.9) | $ | (125.9) | |||||||||||||||||||
Other comprehensive income (loss) before reclassifications | 13.3 | 7.8 | — | (14.4) | 6.7 | ||||||||||||||||||||||||
Pre-tax losses reclassified from accumulated other comprehensive loss | 9.6 | — | 0.2 | — | 9.8 | ||||||||||||||||||||||||
Tax effects | (3.4) | — | — | (0.6) | (4.0) | ||||||||||||||||||||||||
Net current period other comprehensive income (loss) | 19.5 | 7.8 | 0.2 | (15.0) | 12.5 | ||||||||||||||||||||||||
Balances, July 31, 2021 | $ | (4.6) | $ | 14.2 | $ | (21.1) | $ | (101.9) | $ | (113.4) |
Accumulated other comprehensive loss, net of taxes, consisted of the following at July 31, 2020:
Net Unrealized Gains (Losses) on Derivative Instruments | Net Unrealized Gains on Available-for-Sale Debt Securities | Defined Benefit Pension Components | Foreign Currency Translation Adjustments | Total | |||||||||||||||||||||||||
Balances, January 31, 2020 | $ | 8.4 | $ | 4.7 | $ | (22.8) | $ | (150.6) | $ | (160.3) | |||||||||||||||||||
Other comprehensive (loss) income before reclassifications | (15.4) | 1.1 | — | 20.7 | 6.4 | ||||||||||||||||||||||||
Pre-tax (gains) losses reclassified from accumulated other comprehensive loss | (2.0) | 0.1 | (0.3) | — | (2.2) | ||||||||||||||||||||||||
Tax effects | 1.9 | 0.1 | — | (0.4) | 1.6 | ||||||||||||||||||||||||
Net current period other comprehensive (loss) income | (15.5) | 1.3 | (0.3) | 20.3 | 5.8 | ||||||||||||||||||||||||
Balances, July 31, 2020 | $ | (7.1) | $ | 6.0 | $ | (23.1) | $ | (130.3) | $ | (154.5) |
Reclassifications related to gains and losses on available-for-sale debt securities are included in “Interest and other expense, net.” Refer to Note 5, “Financial Instruments,” for the amount and location of reclassifications related to derivative instruments. Reclassifications of the defined benefit pension components of net periodic benefit cost are included in “Interest and other expense, net.”
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19. Net Income Per Share
Basic net income per share is computed using the weighted average number of shares of common stock outstanding for the period, excluding stock options and restricted stock units. Diluted net income per share is based upon the weighted average number of shares of common stock outstanding for the period and potentially dilutive common shares, including the effect of stock options and restricted stock units under the treasury stock method. The following table sets forth the computation of the numerators and denominators used in the basic and diluted net income per share amounts:
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Numerator: | |||||||||||||||||||||||
Net income | $ | 115.6 | $ | 98.2 | $ | 271.2 | $ | 164.7 | |||||||||||||||
Denominator: | |||||||||||||||||||||||
Denominator for basic net income per share—weighted average shares | 219.8 | 219.2 | 219.7 | 219.2 | |||||||||||||||||||
Effect of dilutive securities | 2.7 | 3.0 | 2.5 | 2.8 | |||||||||||||||||||
Denominator for dilutive net income per share | 222.5 | 222.2 | 222.2 | 222.0 | |||||||||||||||||||
Basic net income per share | $ | 0.53 | $ | 0.45 | $ | 1.23 | $ | 0.75 | |||||||||||||||
Diluted net income per share | $ | 0.52 | $ | 0.44 | $ | 1.22 | $ | 0.74 |
The computation of diluted net income per share does not include shares that are anti-dilutive under the treasury stock method because their exercise prices are higher than the average market value of Autodesk’s stock during the periods. For the three and six months ended July 31, 2021, there were zero and 0.4 million potentially anti-dilutive shares excluded from the computation of diluted net income per share, respectively. For the three and six months ended July 31, 2020, there were 0.1 million and zero potentially anti-dilutive shares excluded from the computation of diluted net income per share, respectively.
20. Segments
Autodesk operates in one operating segment and accordingly, all required financial segment information is included in the condensed consolidated financial statements. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision makers (“CODM”) in deciding how to allocate resources and assess performance. Autodesk reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions, allocating resources, and assessing performance as the source of the Company’s reportable segments. The Company’s CODM allocates resources and assesses the operating performance of the Company as a whole.
Information regarding Autodesk’s long-lived assets by geographic area is as follows:
July 31, 2021 | January 31, 2021 | ||||||||||
Long-lived assets (1): | |||||||||||
Americas | |||||||||||
U.S. | $ | 407.0 | $ | 423.6 | |||||||
Other Americas | 29.2 | 29.5 | |||||||||
Total Americas | 436.2 | 453.1 | |||||||||
Europe, Middle East, and Africa | 105.3 | 109.7 | |||||||||
Asia Pacific | 41.1 | 46.7 | |||||||||
Total long-lived assets | $ | 582.6 | $ | 609.5 |
____________________
(1)Long-lived assets exclude deferred tax assets, marketable securities, goodwill, and intangible assets.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion in our MD&A and elsewhere in this Form 10-Q contains trend analyses and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are any statements that look to future events and consist of, among other things, our business strategies, including those discussed in “Strategy,” “Overview of the Three and Six Months Ended July 31, 2021,” and in “Results of Operations-Impacts of COVID-19 to Autodesk’s Business.” Examples of such forward-looking statements may relate to items such as future net revenue, operating expenses, recurring revenue, net revenue retention rate, cash flow, remaining performance obligations, and other future financial results (by product type and geography), the effectiveness of our efforts to successfully manage transitions to new markets; our ability to increase our subscription base; expected market trends, including the growth of cloud and mobile computing; the availability of credit; the effect of unemployment; the effects of global economic conditions, including from an economic downturn or recession in the United States or in other countries around the world; the effects of revenue recognition; the effects of recently issued accounting standards; expected trends in certain financial metrics, including expenses; expectations regarding our cash needs; the effects of fluctuations in exchange rates and our hedging activities on our financial results; our ability to successfully expand adoption of our products; our ability to gain market acceptance of new business and sales initiatives; the impact of past acquisitions, including our integration efforts and expected synergies; the impact of economic volatility and geopolitical activities in certain countries, particularly emerging economy countries; the timing and amount of purchases under our stock buy-back plan; and the effects of potential non-cash charges on our financial results and the resulting effect on our financial results. In addition, forward-looking statements also consist of statements involving expectations regarding product capability and acceptance, statements regarding our liquidity and short-term and long-term cash requirements, as well as statements involving trend analyses and statements including such words as “may,” “believe,” “could,” “anticipate,” “would,” “might,” “plan,” “expect,” and similar expressions or the negative of these terms or other comparable terminology. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of a number of factors, including those set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the U.S. Securities and Exchange Commission. We assume no obligation to update the forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.
Note: A glossary of terms used in this Form 10-Q appears at the end of this Item 2.
Strategy
Autodesk makes design and make technology for people who make things. If you have ever driven a high-performance car, admired a towering skyscraper, used a smartphone, or watched a great film, chances are you have experienced what millions of Autodesk customers are doing with our technology. We empower innovators to achieve the new possible - enabling them to discover first-in-kind solutions to complex design and make challenges, deliver tangible outcomes in record time, and make data-powered decisions for sustainable outcomes.
Our strategy is to build enduring relationships with customers, delivering innovative technology that provides valuable automation and insight into their design and make process. To drive execution of our strategy, we are focused on three strategic priorities: delivering on the promise of subscription, digitizing the company, and reimagining construction, manufacturing, and production.
We equip and inspire our users with the tailored tools, services, and access they need for success today and tomorrow. At every step, we help users harness the power of data to build upon their ideas and explore new ways of imagining, collaborating, and creating to achieve better outcomes for their customers, for society, and for the world. And because creativity can’t flourish in silos, we connect what matters - from steps in a project to collaborators on a unified platform.
Autodesk was founded during the platform transition from mainframe computers and engineering workstations to personal computers. We have developed and sustained a compelling value proposition based upon software for the personal computer. Just as the transition from mainframes to personal computers transformed the industry over 30 years ago, the software industry has undergone a transition from developing and selling perpetual licenses and on-premises products to subscriptions and cloud-enabled technologies.
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Product Evolution
We offer subscriptions for individual products and Industry Collections, enterprise business arrangements (“EBAs”), and cloud service offerings (collectively referred to as “subscription plan”). Subscription plans are designed to give our customers more flexibility with how they use our offerings and to attract a broader range of customers, such as project-based users and small businesses.
Our subscription plans currently represent a hybrid of desktop software and cloud functionality, which provides a device-independent, collaborative design workflow for designers and their stakeholders. Our cloud offerings, for example, BIM 360, Shotgrid (formerly Shotgun), AutoCAD web app, and AutoCAD mobile app, provide tools, including mobile and collaboration capabilities, to streamline design, collaboration, building and manufacturing, and data management processes. We believe that customer adoption of these latest offerings will continue to grow as customers across a range of industries begin to take advantage of the scalable computing power and flexibility provided through these services.
Industry Collections provide our customers with access to a broader selection of Autodesk solutions and services, simplifying the customers’ ability to benefit from a complete set of tools for their industry.
Our strategy includes improving our product functionality and expanding our product offerings through internal development as well as through the acquisition of products, technology, and businesses. Acquisitions often increase the speed at which we can deliver product functionality to our customers; however, they entail cost and integration challenges and may, in certain instances, negatively impact our operating margins. We continually review these factors in making decisions regarding acquisitions. We currently anticipate that we will continue to acquire products, technology, and businesses as compelling opportunities become available.
To support our strategic priority of re-imagining Architecture, Engineering, and Construction (“AEC”), we are strengthening the foundation of our AEC solutions with both organic and inorganic investments. In the fiscal quarter ended April 30, 2021, we acquired Storm UK Holdco Limited, the parent of Innovyze, Inc. (“Innovyze”), which provides water infrastructure software. Combining Innovyze’s hydraulic modeling, simulation, asset performance management and operational analytics solutions with Autodesk’s design and analysis solutions (including Autodesk Civil 3D, Autodesk InfraWorks, and the Autodesk Construction Cloud) enables us to deliver end-to-end, cloud-based solutions for our water infrastructure customers that drive efficiency and sustainability. In fiscal 2021, we acquired Spacemaker which uses cloud-based, artificial intelligence (AI), and generative design to help architects, urban designers, and real estate developers make faster and more informed early-stage design decisions which can help maximize the long-term sustainability and return from property investments. Other acquisitions in fiscal 2021 included solutions that use artificial intelligence and machine learning to extract and process data from project plans and specifications allowing general contractors, subcontractors, and owners to automate workflows such as submittals and project closeout.
In Manufacturing, our strategy is to combine organic and acquired software in existing and adjacent verticals to create end-to-end, cloud-based solutions for our customers that drive efficiency and sustainability. We continue to attract both global manufacturing leaders and disruptive startups with our generative design and cloud-based Fusion 360 that converges the process of design with manufacturing. A fiscal 2021 acquisition included a leading provider of post-processing and machine simulation solutions. In May 2021, we acquired Upchain, an instant-on, cloud-based data management technology that allows product design and manufacturing customers to collaborate in the cloud across their value chains and bring products to market faster.
Global Reach
We sell our products and services globally, through a combination of indirect and direct channels. Our indirect channels include value added resellers, direct market resellers, distributors, computer manufacturers, and other software developers. Our direct channels include internal sales resources dedicated to selling in our largest accounts, our highly specialized solutions, and business transacted through our online Autodesk branded store. See Note 3, “Revenue Recognition” in the Notes to the Condensed Consolidated Financial Statements for further detail on the results of our indirect and direct channel sales for the three and six months ended July 31, 2021 and 2020.
We anticipate that our channel mix will continue to change as we scale our online Autodesk branded store business and our largest accounts shift towards direct-only business models. However, we expect our indirect channel will continue to transact and support the majority of our customers and revenue. We employ a variety of incentive programs and promotions to align our direct and indirect channels with our business strategies. In addition, we have a worldwide user group organization and we have created online user communities dedicated to the exchange of information related to the use of our products.
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One of our key strategies is to maintain an open-architecture design of our software products to facilitate third-party development of complementary products and industry-specific software solutions. This approach enables customers and third parties to customize solutions for a wide variety of highly specific uses. We offer several programs that provide strategic investment funding, technological platforms, user communities, technical support, forums, and events to developers who develop add-on applications for our products. For example, we have established the Autodesk Forge developer program to support innovators that build solutions to facilitate the development of a single connected ecosystem for the future of how things are designed, made, and used as well as support ideas that push the boundaries of 3D printing.
In addition to the competitive advantages afforded by our technology, our large global network of distributors, resellers, third-party developers, customers, educators, educational institutions, learning partners, and students is a key competitive advantage which has been cultivated over an extensive period. This network of partners and relationships provides us with a broad and deep reach into volume markets around the world. Our distributor and reseller network is extensive and provides our customers with the resources to purchase, deploy, learn, and support our solutions quickly and easily. We have a significant number of registered third-party developers who create products that work well with our solutions and extend them for a variety of specialized applications.
Impact at Autodesk
To help our customers imagine, design, and make a better world, our impact initiatives focus our efforts on the areas where we can have the greatest positive impact: products and support for our customers, catalyzing impact and innovation across industry, investing in our customers’ and employees’ access and ability to learn and develop relevant skills for in-demand roles, and leading by example with our 100% renewable, net-zero greenhouse gas emissions, and inclusive business practices. Through our products and services, we partner with customers to help them better understand and improve the environmental, energy, and materials performance of everything they make, help them make products, buildings, and entire cities that foster healthy and resilient communities, and help them adapt, grow, and prosper alongside increasing levels of automation.
The Autodesk Foundation (the “Foundation”), a privately funded 501(c)(3) charity organization established and solely funded by us, leads our philanthropic efforts. The purpose of the Foundation is twofold: to support employees to make a better world by matching employees’ volunteer time and/or donations to nonprofit organizations; and to support organizations and individuals using design to drive positive social and environmental impact. On our behalf, the Foundation also administers a discounted software donation program to nonprofit organizations, social and environmental entrepreneurs, and others who are developing design solutions that will shape a more sustainable future.
Additional information about our environmental, social, and governance program are available in our annual impact report on our website at www.autodesk.com.
Assumptions Behind Our Strategy
Our strategy depends upon a number of assumptions, including: making our technology available to mainstream markets; leveraging our large global network of distributors, resellers, third-party developers, customers, educators, educational institutions, learning partners, and students; improving the performance and functionality of our products; and adequately protecting our intellectual property. If the outcome of any of these assumptions differs from our expectations, we may not be able to implement our strategy, which could potentially adversely affect our business. For further discussion regarding these and related risks, see Part II, Item 1A, “Risk Factors.”
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). In preparing our Condensed Consolidated Financial Statements, we make assumptions, judgments, and estimates that can have a significant impact on amounts reported in our Condensed Consolidated Financial Statements. We evaluate our estimates and assumptions on an ongoing basis. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. Our significant accounting policies are described in Note 1, “Business and Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements in our Form 10-K for the fiscal year ended January 31, 2021.
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An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We highlighted those policies that involve a higher degree of judgment and complexity with further discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Form 10-K. There have been no material changes to our critical accounting policies and estimates during the three and six months ended July 31, 2021, as compared to those disclosed in our Form 10-K for the fiscal year ended January 31, 2021. We believe these policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Overview of the Three and Six Months Ended July 31, 2021
•Total net revenue increased 16% and 14% to $1,059.7 million and $2,049.0 million for the three and six months ended July 31, 2021, respectively, compared to the same periods in the prior fiscal year.
•Recurring revenue as a percentage of net revenue was 98% for both the three and six months ended July 31, 2021, and remained flat as compared to both periods in the prior fiscal year.
•Net revenue retention rate (“NR3”) was within the range of 100% and 110% as of both July 31, 2021 and 2020.
•Deferred revenue was $3.30 billion, a decrease of 2% compared to the fourth quarter in the prior fiscal year.
•Remaining performance obligations (short-term and long-term deferred revenue plus unbilled deferred revenue) (“RPO”) was $4.14 billion, a decrease of 2% compared to the fourth quarter in the prior fiscal year.
•Current remaining performance obligations were $2.85 billion, an increase of 4% compared to the fourth quarter in the prior fiscal year.
Revenue Analysis
Net revenue increased during the three and six months ended July 31, 2021, as compared to the same period in the prior fiscal year, primarily due to the respective 21% and 19% increase in subscription revenue, partially offset by the respective 67% and 68% decrease in maintenance revenue.
For further discussion of the drivers of these results, see below under the heading “Results of Operations.”
We rely significantly upon major distributors and resellers in both the U.S. and international regions, including Tech Data Corporation and its global affiliates (collectively, “Tech Data”) and Ingram Micro Inc. (“Ingram Micro”). Total sales to Tech Data accounted for 36% of our total net revenue for both the three and six months ended July 31, 2021, and 37% and 38% of our total net revenue for the three and six months ended July 31, 2020, respectively. During both the three and six months ended July 31, 2021, Ingram Micro accounted for 9% of Autodesk's total net revenue. During both the three and six months ended July 31, 2020, Ingram Micro accounted for 10% of Autodesk’s total net revenue. Our customers through Tech Data and Ingram Micro are the resellers and end users who purchase our software subscriptions and services. Should any of our agreements with Tech Data or Ingram Micro be terminated for any reason, we believe the resellers and end users who currently purchase our products through Tech Data or Ingram Micro would be able to continue to do so under substantially the same terms from one of our many other distributors without substantial disruption to our revenue. Consequently, we believe our business is not substantially dependent on Tech Data or Ingram Micro.
Recurring Revenue and Net Revenue Retention Rate
In order to help better understand our financial performance we use several key performance metrics including recurring revenue and NR3. These metrics are key performance metrics and should be viewed independently of revenue and deferred revenue as these metrics are not intended to be combined with those items. We use these metrics to monitor the strength of our recurring business. We believe these metrics are useful to investors because they can help in monitoring the long-term health of our business. Our determination and presentation of these metrics may differ from that of other companies. The presentation of these metrics is meant to be considered in addition to, not as a substitute for or in isolation from, our financial measures prepared in accordance with GAAP. Please refer to the Glossary of Terms for the definitions of these metrics.
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The following table outlines our recurring revenue metric for the three and six months ended July 31, 2021 and 2020:
Three Months Ended July 31, 2021 | Change compared to prior fiscal year | Three Months Ended July 31, 2020 | |||||||||||||||||||||
(In millions, except percentage data) | $ | % | |||||||||||||||||||||
Recurring revenue (1) | $ | 1,033.6 | $ | 141.2 | 16 | % | $ | 892.4 | |||||||||||||||
As a percentage of net revenue | 98 | % | N/A | N/A | 98 | % | |||||||||||||||||
Six Months Ended July 31, 2021 | Change compared to prior fiscal year | Six Months Ended July 31, 2020 | |||||||||||||||||||||
$ | % | ||||||||||||||||||||||
Recurring Revenue (1) | $ | 2,000.2 | $ | 242.7 | 14 | % | $ | 1,757.5 | |||||||||||||||
As a percentage of net revenue | 98 | % | N/A | N/A | 98 | % |
________________
(1)The acquisition of a business may cause variability in the comparison of recurring revenue in this table above and recurring revenue derived from the revenue reported in the Condensed Consolidated Statements of Operations.
NR3 was within the range of 100% and 110% as of both July 31, 2021, and 2020.
Foreign Currency Analysis
We generate a significant amount of our revenue in the United States, Japan, Germany, Finland, and the United Kingdom.
The following table shows the impact of foreign exchange rate changes on our net revenue and total spend:
Three Months Ended July 31, 2021 | Six Months Ended July 31, 2021 | ||||||||||||||||||||||||||||||||||
Percent change compared to prior fiscal year | Constant Currency percent change compared to prior fiscal year (1) | Positive/Negative/Neutral impact from foreign exchange rate changes | Percent change compared to prior fiscal year | Constant Currency percent change compared to prior fiscal year (1) | Positive/Negative/Neutral impact from foreign exchange rate changes | ||||||||||||||||||||||||||||||
Net revenue | 16 | % | 14 | % | Positive | 14 | % | 12 | % | Positive | |||||||||||||||||||||||||
Total spend | 19 | % | 16 | % | Negative | 16 | % | 14 | % | Negative |
________________
(1)Please refer to the Glossary of Terms for the definitions of our constant currency growth rates.
Changes in the value of the U.S. dollar may have a significant effect on net revenue, total spend, and income from operations in future periods. We use foreign currency contracts to reduce the exchange rate effect on a portion of the net revenue of certain anticipated transactions but do not attempt to completely mitigate the impact of fluctuations of such foreign currency against the U.S. dollar.
Remaining Performance Obligations
RPO represents deferred revenue and contractually stated or committed orders under early renewal and multi-year billing plans for subscription, services, license, and maintenance for which the associated deferred revenue has not yet been recognized. Unbilled deferred revenue is not included as a receivable or deferred revenue on our Condensed Consolidated Balance Sheets. See Note 3, “Revenue Recognition,” for more details on Autodesk's performance obligations.
(in millions) | July 31, 2021 | January 31, 2021 | |||||||||
Deferred revenue | $ | 3,300.4 | $ | 3,360.2 | |||||||
Unbilled deferred revenue | 843.1 | 880.5 | |||||||||
RPO | $ | 4,143.5 | $ | 4,240.7 |
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RPO consisted of the following:
(in millions) | July 31, 2021 | January 31, 2021 | |||||||||
Current RPO | $ | 2,854.1 | $ | 2,738.0 | |||||||
Non-current RPO | 1,289.4 | 1,502.7 | |||||||||
RPO | $ | 4,143.5 | $ | 4,240.7 |
We expect that the amount of RPO will change from quarter to quarter for several reasons, including the specific timing, duration, and size of customer subscription and support agreements, varying billing cycles of such agreements, the specific timing of customer renewals, and foreign currency fluctuations. Historically, we have had increased EBA sales activity in our fourth fiscal quarter and this seasonality may affect the relative value of our billings, RPO, and collections in the fourth and first fiscal quarters.
Balance Sheet and Cash Flow Items
At July 31, 2021, we had $924.9 million in cash and marketable securities. Our cash flow from operations increased to $538.1 million for the six months ended July 31, 2021, compared to $418.5 million for the six months ended July 31, 2020. We repurchased 0.7 million shares of our common stock for $189.0 million during the six months ended July 31, 2021. Comparatively, we repurchased 1.3 million shares of our common stock for $196.8 million during the six months ended July 31, 2020. See further discussion regarding the balance sheet and cash flow activities under the heading “Liquidity and Capital Resources.”
Results of Operations
Impacts of COVID-19 to Autodesk’s Business
We are continuing to conduct business during the COVID-19 pandemic with substantial modifications to employee travel, employee work locations, and virtualization, postponement or cancellation of certain sales and marketing events, among other modifications. We will continue to invest in critical areas such as research and development, construction, and digitizing the company to ensure our future success as we come out of the pandemic. We have observed other companies, as well as many governments continuing to take precautionary measures to address COVID-19, and they may take further actions that alter their normal business operations. While government authorities in some geographies are removing or adding COVID-19 related business operations restrictions, we continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders, including in response to outbreaks and variants.
We believe our investment in cloud products and a subscription business model, backed by a strong balance sheet, give us a robust foundation to successfully navigate the economic challenges of COVID-19. The extent of the impact on our business in fiscal 2022 and beyond will depend on several factors, including the full duration and the extent of the pandemic, including as a result of outbreaks and variants; actions taken by governments, businesses, and consumers in response to the pandemic; speed and timing of economic recovery; speed of rollout of COVID-19 vaccines, lifting of restrictions on movement, and normalization of full-time return to work and social events; our billings and renewal rates, including new business close rates, rate of multi-year contracts, pace of closing larger transactions, and new unit volume growth; and effect of the pandemic on margins and cash flow. All of these factors continue to evolve and remain uncertain at this time, and some of these factors are not within our control. Further discussion of the potential impacts of COVID-19 on our business can be found in Part II, Item 1A, “Risk Factors.”
Net Revenue
Net Revenue by Income Statement Presentation
Subscription revenue consists of our term-based product subscriptions, cloud service offerings, and flexible EBAs. Revenue from these arrangements is predominately recognized ratably over the contract term commencing with the date our service is made available to customers and when all other revenue recognition criteria have been satisfied.
Maintenance revenue consists of renewal fees for existing maintenance plan agreements that were initially purchased with a perpetual software license. Under our maintenance plan, customers are eligible to receive unspecified upgrades, when and if available, and technical support. We recognize maintenance revenue ratably over the term of the agreements, which is generally one year.
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Other revenue consists of revenue from consulting, training, and other products and services, and is recognized as the products are delivered and services are performed.
Three Months Ended | Change Compared to Prior Fiscal Year | Three Months Ended | Management comments | ||||||||||||||||||||||||||
(In millions, except percentages) | July 31, 2021 | $ | % | July 31, 2020 | |||||||||||||||||||||||||
Net Revenue: | |||||||||||||||||||||||||||||
Subscription | $ | 1,016.7 | $ | 175.5 | 21 | % | $ | 841.2 | Increase due to growth across subscription types, led by product subscription renewal revenue. Also contributing to the growth was an increase in revenue from EBA offerings. | ||||||||||||||||||||
Maintenance (1) | 16.9 | (34.3) | (67) | % | 51.2 | ||||||||||||||||||||||||
Total subscription and maintenance revenue | 1,033.6 | 141.2 | 16 | % | 892.4 | ||||||||||||||||||||||||
Other | 26.1 | 5.4 | 26 | % | 20.7 | ||||||||||||||||||||||||
$ | 1,059.7 | $ | 146.6 | 16 | % | $ | 913.1 | ||||||||||||||||||||||
Six Months Ended | Change compared to prior fiscal year | Six Months Ended | Management Comments | ||||||||||||||||||||||||||
July 31, 2021 | $ | % | July 31, 2020 | ||||||||||||||||||||||||||
Net Revenue: | |||||||||||||||||||||||||||||
Subscription | $ | 1,964.2 | $ | 320.0 | 19 | % | $ | 1,644.2 | Increase due to growth across subscription types, led by product subscription renewal revenue. Also contributing to the growth was an increase in revenue from EBA offerings. | ||||||||||||||||||||
Maintenance (1) | 36.0 | (77.3) | (68) | % | 113.3 | ||||||||||||||||||||||||
Total subscription and maintenance revenue | 2,000.2 | 242.7 | 14 | % | 1,757.5 | ||||||||||||||||||||||||
Other | 48.8 | 7.5 | 18 | % | 41.3 | ||||||||||||||||||||||||
$ | 2,049.0 | $ | 250.2 | 14 | % | $ | 1,798.8 |
____________________
(1)We expect maintenance revenue will slowly decline; however, the rate of decline will vary based on the number of renewals, the renewal rate, and our ability to incentivize maintenance plan customers to transition to subscription plan offerings.
37
Net Revenue by Product Family
Our product offerings are focused in four primary product families: Architecture, Engineering and Construction (“AEC”), AutoCAD and AutoCAD LT, Manufacturing (“MFG”), and Media and Entertainment (“M&E”).
Three Months Ended | Change compared to prior fiscal year | Three Months Ended | Management comments | ||||||||||||||||||||||||||
(In millions, except percentages) | July 31, 2021 | $ | % | July 31, 2020 | |||||||||||||||||||||||||
Net Revenue by Product Family: | |||||||||||||||||||||||||||||
AEC | $ | 478.7 | $ | 81.7 | 21 | % | $ | 397.0 | Increase due to growth in revenue from AEC Collections, EBAs, Innovyze, and Revit. | ||||||||||||||||||||
AutoCAD and AutoCAD LT | 304.4 | 32.5 | 12 | % | 271.9 | Increase due to growth in revenue from both AutoCAD LT and AutoCAD. | |||||||||||||||||||||||
MFG | 207.7 | 22.2 | 12 | % | 185.5 | Increase due to growth in revenue from Fusion360, EBAs, and MFG Collections. | |||||||||||||||||||||||
M&E | 58.5 | 5.2 | 10 | % | 53.3 | Increase due to growth in revenue from Maya, M&E Collections, and EBAs. | |||||||||||||||||||||||
Other | 10.4 | 5.0 | 93 | % | 5.4 | ||||||||||||||||||||||||
Total Net Revenue | $ | 1,059.7 | $ | 146.6 | 16 | % | $ | 913.1 | |||||||||||||||||||||
Six Months Ended | Change compared to prior fiscal year | Six Months Ended | |||||||||||||||||||||||||||
July 31, 2021 | $ | % | July 31, 2020 | ||||||||||||||||||||||||||
Net Revenue by Product Family: | |||||||||||||||||||||||||||||
AEC | $ | 921.3 | $ | 141.6 | 18 | % | $ | 779.7 | Increase due to growth in revenue from AEC Collections, EBAs, Innovyze, and Revit. | ||||||||||||||||||||
ACAD and AutoCAD LT | 589.5 | 55.4 | 10 | % | 534.1 | Increase due to growth in revenue from both AutoCAD LT and AutoCAD. | |||||||||||||||||||||||
MFG | 405.0 | 36.6 | 10 | % | 368.4 | Increase due to growth in revenue from EBAs, Fusion360,and MFG Collections. | |||||||||||||||||||||||
M&E | 113.5 | 7.6 | 7 | % | 105.9 | Increase due to growth in revenue from Maya, M&E Collections, and EBAs. | |||||||||||||||||||||||
Other | 19.7 | 9.0 | 84 | % | 10.7 | ||||||||||||||||||||||||
Total Net Revenue | $ | 2,049.0 | $ | 250.2 | 14 | % | $ | 1,798.8 | |||||||||||||||||||||
38
Net Revenue by Geographic Area
Three Months Ended July 31, 2021 | Change compared to prior fiscal year | Constant currency change compared to prior fiscal year | Three Months Ended July 31, 2020 | ||||||||||||||||||||||||||
(In millions, except percentages) | $ | % | % | ||||||||||||||||||||||||||
Net Revenue: | |||||||||||||||||||||||||||||
Americas | |||||||||||||||||||||||||||||
U.S. | $ | 347.3 | $ | 37.8 | 12 | % | * | $ | 309.5 | ||||||||||||||||||||
Other Americas | 75.5 | 13.5 | 22 | % | * | 62.0 | |||||||||||||||||||||||
Total Americas | 422.8 | 51.3 | 14 | % | 14 | % | 371.5 | ||||||||||||||||||||||
EMEA | 410.2 | 55.5 | 16 | % | 12 | % | 354.7 | ||||||||||||||||||||||
APAC | 226.7 | 39.8 | 21 | % | 18 | % | 186.9 | ||||||||||||||||||||||
Total Net Revenue | $ | 1,059.7 | $ | 146.6 | 16 | % | 14 | % | $ | 913.1 | |||||||||||||||||||
Emerging Economies | $ | 132.8 | $ | 19.1 | 17 | % | 16 | % | $ | 113.7 | |||||||||||||||||||
Six Months Ended July 31, 2021 | Change compared to prior fiscal year | Constant currency change compared to prior fiscal year | Six Months Ended July 31, 2020 | ||||||||||||||||||||||||||
(In millions, except percentages) | $ | % | % | ||||||||||||||||||||||||||
Net Revenue: | |||||||||||||||||||||||||||||
Americas | |||||||||||||||||||||||||||||
U.S. | $ | 671.3 | $ | 61.2 | 10 | % | * | $ | 610.1 | ||||||||||||||||||||
Other Americas | 143.2 | 19.6 | 16 | % | * | 123.6 | |||||||||||||||||||||||
Total Americas | 814.5 | 80.8 | 11 | % | 11 | % | 733.7 | ||||||||||||||||||||||
EMEA | 792.7 | 93.2 | 13 | % | 11 | % | 699.5 | ||||||||||||||||||||||
APAC | 441.8 | 76.2 | 21 | % | 18 | % | 365.6 | ||||||||||||||||||||||
Total Net Revenue | $ | 2,049.0 | $ | 250.2 | 14 | % | 12 | % | $ | 1,798.8 | |||||||||||||||||||
Emerging Economies | $ | 253.9 | $ | 28.8 | 13 | % | 12 | % | $ | 225.1 |
____________________
* Constant currency data not provided at this level.
We believe that international revenue will continue to comprise a majority of our net revenue. Unfavorable economic conditions in the countries that contribute a significant portion of our net revenue, including in emerging economies such as Brazil, Russia, India, and China, may have an adverse effect on our business in those countries and our overall financial performance. Changes in the value of the U.S. dollar relative to other currencies have significantly affected, and could continue to significantly affect, our financial results for a given period even though we hedge a portion of our current and projected revenue. Increases to the levels of political and economic unpredictability or protectionism in the global market may impact our future financial results.
39
Net Revenue by Sales Channel
Three Months Ended | Change compared to prior fiscal year | Three Months Ended | Management Comments | ||||||||||||||||||||||||||
(In millions, except percentages) | July 31, 2021 | $ | % | July 31, 2020 | |||||||||||||||||||||||||
Net Revenue by Sales Channel: | |||||||||||||||||||||||||||||
Indirect | $ | 702.2 | $ | 62.9 | 10 | % | $ | 639.3 | Increase due to growth in subscription revenue. | ||||||||||||||||||||
Direct | 357.5 | 83.7 | 31 | % | 273.8 | Increase due to an increase in EBAs and our online Autodesk branded store. | |||||||||||||||||||||||
Total Net Revenue | $ | 1,059.7 | $ | 146.6 | 16 | % | $ | 913.1 | |||||||||||||||||||||
Six Months Ended | Change compared to prior fiscal year | Six Months Ended | Management Comments | ||||||||||||||||||||||||||
July 31, 2021 | $ | % | July 31, 2020 | ||||||||||||||||||||||||||
Net Revenue by Sales Channel: | |||||||||||||||||||||||||||||
Indirect | $ | 1,363.5 | $ | 100.8 | 8 | % | $ | 1,262.7 | Increase due to growth in subscription revenue. | ||||||||||||||||||||
Direct | 685.5 | 149.4 | 28 | % | 536.1 | Increase due to an increase in EBAs and our online Autodesk branded store. | |||||||||||||||||||||||
Total Net Revenue | $ | 2,049.0 | $ | 250.2 | 14 | % | $ | 1,798.8 | |||||||||||||||||||||
Net Revenue by Product Type
Three Months Ended July 31, 2021 | Change compared to prior fiscal year | Three Months Ended July 31, 2020 | |||||||||||||||||||||||||||
(In millions, except percentages) | $ | % | Management Comments | ||||||||||||||||||||||||||
Net Revenue by Product Type: | |||||||||||||||||||||||||||||
Design | $ | 944.0 | $ | 122.6 | 15 | % | $ | 821.4 | Increase due to growth in EBA offerings, AEC & MFG collections, AutoCAD LT, and AutoCAD Family. | ||||||||||||||||||||
Make | 89.6 | 18.6 | 26 | % | 71.0 | Increase primarily due to growth in revenue from BIM Family, Fusion, and Plangrid products. | |||||||||||||||||||||||
Other | 26.1 | 5.4 | 26 | % | 20.7 | ||||||||||||||||||||||||
Total Net Revenue | $ | 1,059.7 | $ | 146.6 | 16 | % | $ | 913.1 | |||||||||||||||||||||
Six Months Ended July 31, 2021 | Change compared to prior fiscal year | Six Months Ended July 31, 2020 | |||||||||||||||||||||||||||
(In millions, except percentages) | $ | % | Management Comments | ||||||||||||||||||||||||||
Net Revenue: | |||||||||||||||||||||||||||||
Design | $ | 1,829.1 | $ | 210 | 13 | % | $ | 1,619.1 | Increase due to growth in EBA offerings, AEC & MFG collections, AutoCAD LT, and AutoCAD Family. | ||||||||||||||||||||
Make | 171.1 | 32.7 | 24 | % | 138.4 | Increase primarily due to growth in revenue from BIM Family, Fusion, and Plangrid products. | |||||||||||||||||||||||
Other | 48.8 | 7.5 | 18 | % | 41.3 | ||||||||||||||||||||||||
Total Net Revenue | $ | 2,049.0 | $ | 250.2 | 14 | % | $ | 1,798.8 | |||||||||||||||||||||
40
Cost of Revenue and Operating Expenses
Cost of subscription and maintenance revenue includes the labor costs of providing product support to our subscription and maintenance customers, SaaS vendor costs and allocated IT costs, facilities costs, professional services fees related to operating our network and cloud infrastructure, royalties, depreciation expense and operating lease payments associated with computer equipment, data center costs, salaries, related expenses of network operations, stock-based compensation expense, and gains and losses on our operating expense cash flow hedges.
Cost of other revenue includes labor costs associated with product setup, costs of consulting and training services contracts, and collaborative project management services contracts. Cost of other revenue also includes stock-based compensation expense, overhead charges, allocated IT and facilities costs, professional services fees, and gains and losses on our operating expense cash flow hedges.
Cost of revenue, at least over the near term, is affected by labor costs, hosting costs for our cloud offerings, the volume and mix of product sales, fluctuations in consulting costs, amortization of developed technology, new customer support offerings, royalty rates for licensed technology embedded in our products, stock-based compensation expense, and gains and losses on our operating expense cash flow hedges.
Marketing and sales expenses include salaries, bonuses, benefits, and stock-based compensation expense for our marketing and sales employees, the expense of travel, entertainment, and training for such personnel, sales and dealer commissions, and the costs of programs aimed at increasing revenue, such as advertising, trade shows and expositions, and various sales and promotional programs. Marketing and sales expenses also include SaaS vendor costs and allocated IT costs, payment processing fees, the cost of supplies and equipment, gains and losses on our operating expense cash flow hedges, facilities costs, and labor costs associated with sales and order management.
Research and development expenses, which are expensed as incurred, consist primarily of salaries, bonuses, benefits, and stock-based compensation expense for research and development employees, the expense of travel, entertainment, and training for such personnel, professional services such as fees paid to software development firms and independent contractors, SaaS vendor costs and allocated IT costs, gains and losses on our operating expense cash flow hedges, and facilities costs.
General and administrative expenses include salaries, bonuses, benefits, and stock-based compensation expense for our CEO, finance, human resources, and legal employees, as well as professional fees for legal and accounting services, SaaS vendor costs and net IT costs, certain foreign business taxes, gains and losses on our operating expense cash flow hedges, expense of travel, entertainment, and training, facilities costs, acquisition-related costs, and the cost of supplies and equipment.
Three Months Ended | Change compared to prior fiscal year | Three Months Ended | Management comments | ||||||||||||||||||||||||||
(In millions, except percentages) | July 31, 2021 | $ | % | July 31, 2020 | |||||||||||||||||||||||||
Cost of revenue: | |||||||||||||||||||||||||||||
Subscription and maintenance | $ | 76.0 | $ | 17.5 | 30 | % | $ | 58.5 | Increase primarily due to an increase in cloud hosting costs and employee-related costs driven by higher headcount as well as an increase in stock-based compensation. | ||||||||||||||||||||
Other | 15.8 | 0.8 | 5 | % | 15.0 | Increase primarily due to an increase in stock-based compensation. | |||||||||||||||||||||||
Amortization of developed technologies | 13.6 | 6.2 | 84 | % | 7.4 | Increase due to growth in amortization expense from acquired developed technologies as a result of our acquisitions in the fourth quarter of fiscal 2021 and first and second quarter of fiscal 2022. | |||||||||||||||||||||||
Total cost of revenue | $ | 105.4 | $ | 24.5 | 30 | % | $ | 80.9 | |||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||
Marketing and sales | $ | 398.8 | $ | 47.9 | 14 | % | $ | 350.9 | Increase primarily due to an increase in employee-related costs driven by higher headcount and an increase in stock-based compensation. | ||||||||||||||||||||
Research and development | 276.9 | 44.4 | 19 | % | 232.5 | Increase primarily due to an increase in stock-based compensation as well as an increase in employee-related costs due to higher headcount. |
41
General and administrative | 119.4 | 26.2 | 28 | % | 93.2 | Increase primarily due to an increase in professional fees as well as an increase in stock-based compensation, business tax, and employee-related costs driven by higher headcount. | |||||||||||||||||||||||
Amortization of purchased intangibles | 11.1 | 1.6 | 17 | % | 9.5 | Increase due to growth in amortization expense from acquired intangibles as a result of our acquisitions in the fourth quarter of fiscal 2021 and first and second quarter of fiscal 2022. | |||||||||||||||||||||||
Total operating expenses | $ | 806.2 | $ | 120.1 | 18 | % | $ | 686.1 | |||||||||||||||||||||
Six Months Ended | Change compared to prior fiscal year | Six Months Ended | Management comments | ||||||||||||||||||||||||||
July 31, 2021 | $ | % | July 31, 2020 | ||||||||||||||||||||||||||
Cost of revenue: | |||||||||||||||||||||||||||||
Subscription and maintenance | $ | 144.5 | $ | 28.6 | 25 | % | $ | 115.9 | Increase primarily due to an increase in cloud hosting costs, employee-related costs driven by higher headcount, as well as an increase in stock-based compensation. | ||||||||||||||||||||
Other | 29.9 | (2.2) | (7) | % | 32.1 | Decrease primarily due to lower employee-related costs. | |||||||||||||||||||||||
Amortization of developed technologies | 23.8 | 9.0 | 61 | % | 14.8 | Increase due to growth in amortization expense from acquired developed technologies as a result of our acquisitions in the fourth quarter of fiscal 2021 and first and second quarter of fiscal 2022. | |||||||||||||||||||||||
Total cost of revenue | $ | 198.2 | $ | 35.4 | 22 | % | $ | 162.8 | |||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||
Marketing and sales | $ | 775.9 | $ | 83.7 | 12 | % | $ | 692.2 | Increase primarily due to an increase in employee-related costs driven by higher headcount, an increase in stock-based compensation, as well as an increase in cloud hosting costs. | ||||||||||||||||||||
Research and development | 542.4 | 92.5 | 21 | % | 449.9 | Increase primarily due to an increase in employee-related costs driven by higher headcount, an increase in stock-based compensation, as well as an increase in professional fees. | |||||||||||||||||||||||
General and administrative | 231.3 | 33.3 | 17 | % | 198.0 | Increase primarily due to an increase in employee-related costs driven by higher headcount, an increase in stock-based compensation and acquisition-related costs, as well as an increase in professional fees, and cloud hosting costs, partially offset by an increase in capitalized software costs. | |||||||||||||||||||||||
Amortization of purchased intangibles | 19.3 | 0.1 | 1 | % | 19.2 | Increase due to growth in amortization expense from acquired intangibles as a result of our acquisitions in the fourth quarter of fiscal 2021 and first and second quarter of fiscal 2022. | |||||||||||||||||||||||
Total operating expenses | $ | 1,568.9 | $ | 209.6 | 15 | % | $ | 1,359.3 |
____________________
* Percentage is not meaningful.
The following table highlights our expectation for the absolute dollar change and percent of revenue change between the third quarter of fiscal 2022, as compared to the third quarter of fiscal 2021:
Absolute dollar impact | Percent of net revenue impact | ||||||||||
Cost of revenue | Increase | Increase | |||||||||
Marketing and sales | Increase | Flat | |||||||||
Research and development | Increase | Increase | |||||||||
General and administrative | Increase | Flat | |||||||||
Amortization of purchased intangibles | Flat | Flat |
42
Interest and Other Expense, Net
The following table sets forth the components of interest and other expense, net:
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Interest and investment expense, net | $ | (12.8) | $ | (8.0) | $ | (23.4) | $ | (30.3) |